State of India's Livelihoods Report 2014 State of India’S Livelihoods Report 2014

State of India's Livelihoods Report 2014 State of India’s Livelihoods Report 2014

State of India’s Livelihoods Report 2014_FM.indd 1 21/11/14 12:20 pm CONTRIBUTORS

Sankar Datta Vijay Mahajan Manas Ratha Suryamani Roul Ashok K. Sircar N. Srinivasan

State of India’s Livelihoods Report 2014_FM.indd 2 21/11/14 12:20 pm State of India’s Livelihoods Report 2014

State of India’s Livelihoods Report 2014_FM.indd 3 21/11/14 12:20 pm 1 Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trademark of Oxford University Press in the UK and in certain other countries

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First Edition published in 2015

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ISBN-13: 978-0-19-945827-1 ISBN-10: 0-19-945827-8

Typeset in 11/13.6 Adobe Garamond Pro by Tranistics Data Technologies, New Delhi 110 019 Printed in India by Rakmo Press, New Delhi 110 020 Contents

List of Tables, Figures, Boxes vi

List of Abbreviations viii

Preface xiii

1. Overview of Livelihoods in India 1 Sankar Datta 2. Policy and Programme 17 Ashok K. Sircar and Suryamani Roul 3. Livelihood Finance 43 N. Srinivasan 4. Corporate Social Responsibility and Livelihoods 57 Manas Ratha 5. Farmers’ Producer Companies 87 Vijay Mahajan

Notes on Contributors 109

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TABLES

1.1 Change in employment in India by sectors: Estimates for 2011–12 and the net change between 2004–5 and 2011–12 (in millions) 3 1.2 Employment and unemployment scenario in India 4 1.3 Changes in estimated employment based on last four survey results (in thousands) 5 1.4 Central government expenditure (plan and non-plan) on social services and development 11 2.1 Categories of people facing livelihood challenges 19 2.2 Budget allocation for existing programmes, 2011–15 (Rs crore) 20 2.3 The Rangarajan Committee Poverty Line 28 3.1 Livelihood loans outreach 46 3.2 Finance for farm livelihoods: Comparison across states 47 3.3 Gaps in livelihood finance 50 4.1 Benefits of CSR activities to companies 68 5.1 Participation of small farmers in the production of high-value commodities 88 5.2 Channel margins in various vegetables and fruits 88 5.3 Share of cooperatives in national economy 90 5.4 Market shares agricultural cooperatives in the EU 90 5.5 Comparison between FPCs and cooperatives 93 5.6 Conventional thinking versus reality for cooperatives 103

FIGURES

1.1 Growth in real GDP—an upward turn after the slump 2 1.2 India’s per capita GDP 6

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3.1 Spread available on crop loans to cooperative credit structure in Haryana 51 4.1 CSR as percentage of profit in FY 2013: Top 100 companies 64 4.2 30 companies with CSR in FY 2013 as highest percentage of average net profit of prior three years 64 4.3 Central government spending on social services, 2013−14 65 4.4 CSR spending of top 100 BSE-listed companies 65 5.1 Stages in the evolution of an FPO (figures in Rs million) 94 5.2 How FPOs can build capacity in 10 steps 94 5.3 How FPOs can build capacity in 11 steps 95 5.4 The double helix of an FPO’s evolution into a high-performing FPO 107

BOXES

2.1 New Initiatives Proposed in the 2014–15 Budget 20 2.2 Main features of the RFCTLARR Act, 2013 22 2.3 Demands from industries and state governments 23 2.4 Provisions related to livelihoods in the SC–ST Ordinance 2014 25 2.5 Amendments to the Apprentice Act, 1961 26 2.6 Leading monitoring Indicators of NYP 2014 30 2.7 Lagging monitoring Indicators of NYP 2014 30 3.1 HDFC’s novel livelihoods finance progamme 48 3.2 Financing activity based groups for livelihoods 53 4.1 Companies Act, 2013: Mandatory CSR (Section 135) 59 4.2 Questions Non-profit Organizations should ask about CSR 63

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AAP Annual Action Plan ABF Axis Bank Foundation ACER Australian Council for Educational Research ACF Ambuja Cement Foundation ADB Asian Development Bank ADFT Agricultural Development Finance Tamil Nadu ADS Access Development Services AGM Annual General Meeting AIDS acquired immune deficiency syndrome AKRSP Aga Khan Rural Support Programme AMUL Anand Milk Union Ltd ASA Action for Social Advancement BAIF Bharatia Agro-Industries Foundation BC Business Correspondent BCG Boston Consulting Group BGREI Bringing Green Revolution to Eastern India BJP Bhartiya Janata Party BPL Below Poverty Line BPO Business Process Outsourcing BRLPS Bihar Rural Livelihoods Promotion Society BSBDA Basic Savings Bank Deposit Account BSE Bombay Stock Exchange BVPC Bhangar Vegetable Producers’ Company

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CACP Commission for Agricultural Costs and Prices CAF Charities Aid Foundation CBO Community-Based Organization CCD Centre for Colelctive Development CDS Current Daily Status CEO Chief Executive Officer CMSA Community Managed Sustainable Agriculture CPRs Common Pool Resources CSO Central Statistical Office CSR Corporate Social Responsibility CWG Commonwealth Games DCCB District Central Cooperative Bank DLF Delhi Land and Finance DPIP District Poverty Initiatives Project DSC Development Support Center EGM Extraordinary General Meeting EIA Environment Impact Assessment EMI Equated Monthly Instalment EU European Union FIGs Farmer Interest Groups FMCG fast moving consumer goods FPC Farmer Producer Company FPO Farmers’ Producers Organization FRA Forest Rights Act, 2006 FSA Food Security Act, 2013 FY Financial Year GDP Gross Domestic Product GEAC Genetic Engineering Approval Committee GER Gross Enrolment Ratio GIZ Gesellschaft für Internationale Zusammenarbeit GM genetically modified G&G Godrej Good and Green HDFC Housing Development Finance Corporation HDI Human Development Index HDR Human Development Report HFCs Housing Finance Companies HIH Hand in Hand HIV Human Immunodeficiency Virus HR Human Resource HSAA Hindu Succession (Amendment) Act, 2005

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IAY Indira Awas Yojana IBM International Business Machines ICA International Cooperative Alliance ICDS Integrated Child Development Services ICMR Indian Council of Medical Research IFAD International Fund for Agricultural Development IFFCO Indian Farmers Fertiliser Cooperative Limited IFMR Institute for Financial Management and Research IGA Income Generating Activity IGS Indian Grameen Services IHH Individual Household Latrines ILO International Labour Organization IMR Infant Mortality Rate IOF Investor Owned Firms IQ Intelligence Quotient IRDP Integrated Rural Development Program IRMA Institute for Rural Management Anand IRR Internal Rate of Return IT Information Technology ITC Indian Tobacco Company ITIs Industrial Training Institutes IVRS Interactive Voice Response Services JLGs Joint Liability Groups KCC Kisan Credit Card Kg Kilogram KGFS Kshetriya Grameen Financial Services KRIBHCO Krishak Bharati Cooperative Limited LAMP Livelihood and Microfinance Promotion Fund LGBT Lesbian–Gay–Bisexual–Transgender MACP Maharashtra Agricultural Competitiveness Council MDM Midday Meal Scheme MFI microfinance institution MGNREGA Mahatma Gandhi National Rural Employment Guarantee Act MIS Management Information System MKSP Mahila Kisan Sashaktikaran Pariyojana MMR Maternal Mortality Ratio MNCs Multinational Companies MNREGA Mahatma Gandhi National Rural Employment Guarantee Act, 2005 MoU Memorandum of Understanding MT Metric Tonnes

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NABARD National Bank for Agriculture and Rural Development NABFINS NABARD Financial Services Ltd. NAC National Advisory Council NBFCs non-banking financial companies NCAER National Council for Applied Economic Research NDA National Democratic Alliance NGOs non-governmental organizations NREGA National Rural Employment Guarantee Act NREGS National Rural Employment Guarantee Scheme NRHM National Rural Health Mission NRLM National Rural Livelihood Mission NRLP National Rural Livelihoods Programme NSAP National Social Assistance Programme NSDA National Skill Development Agency NSDC National Skill Development Corporation NSSO National Sample Survey Organization NULM National Urban Livelihood Mission NVIUC National Vegetable Initiative around Urban Clusters NYP National Youth Policy OECD Organization for Economic Co-operation and Development OTC over-the-counter PACS Primary Agricultural Credit Society PACS Poorest Areas Civil Society PAT profit after tax PIs Producer Institutions PMGSY Pradhan Mantri Gram Sadak Yojana PMI Purchasing Managers Index POP poorest of the poor PPP-MSP Pulses Procurement Programme-Minimum Support Price PR public relations PRADAN Professional Assistance for Development Action PRC Performance Review Committee PS Principal Status PSUs Public Sector Units RBI Reserve Bank of India RE Revised Estimates RKVY Rashtriya Krishi Vikas Yojana RF Rural Female RM Rural Male RTE Right to Education Act, 2009

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RTI Right to Information Act, 2005 SCB State Co-operative Bank SC/ ST Scheduled Caste SEDI Skills and Entrepreneurship Development Institutes SERP Society for Elimination of Rural Poverty SFAC Small Farmers’ Agri-business Consortium SGSY Swarnajayanti Gram Swarojgar Yojana SHGs self-help groups SIA Social Impact Assessment SL sustainable livelihoods SLI Sustainable Livelihood Initiative SMEs small and medium enterprises SRAP Smart Rural Aggregation Platform SRLM State Rural Livelihood Mission SS Subsidiary Status SSA Sarva Shiksha Abhiyan ST Scheduled Tribe UBS Union Bank of Switzerland UF Urban Female UM Urban Male UNDP United Nations Development Programme UPA United Progressive Alliance UPSS Usual Principal and Subsidiary Status USD United States Dollar VAT value added tax XLRI Xavier Labour Research Institute XIMB Xavier Institute of Management Bhubaneswar

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India’s macroeconomic indicators have shown a dramatic improvement. Buoyed by a not-so-bad monsoon and a politically stable government, gross domestic product (GDP) growth in the first quarter of 2014−15 has improved to 5.7 per cent after languishing at 4.5−5 per cent for the preceding eight quarters. Falling global oil prices are likely to shrink this year’s current account deficit to a manageable 1.5 per cent of GDP and put the fiscal deficit target of 4.1 per cent well within reach. A new government is also firmly in place. The conditions are right for the new government to deliver, and there is no time to be lost in taking steps to dramatically improve the ease of doing business in India and restart the cycle of job creation and economic prosperity. It is against this backdrop that we bring together the sixth edition of the annual State of India’s Livelihoods (SOIL) Report. The SOIL Report assimilates current debates and developments around the poor and their plight, the potential livelihood opportunities, the role of promoters and the private sector, and policies that advance and impede the possibilities for strengthening the livelihoods of the poor. However, this has not been an easy task because of the difficulty of drawing conclusions in the space of a few months following the regime change. Despite this constraint, the contributors to the SOIL Report for 2014 have done an admirable job, anticipating the likely changes in scenario and extrapolating the prospects. The 2014 SOIL Report has five chapters authored by some well-known sector experts: Sankar Datta, Ashok Sircar, Suryamani Roul, N. Srinivasan, Vijay Mahajan, and Manas Ratha. While a few of them have come on board for the first time, Sankar, Vijay, Ashok Sircar, and Suryamani have played a critical role in bringing out past reports. I am happy that a core group of authors seems to be coming together to bring out the SOIL Report every year. The opening chapter ‘Overview of Livelihoods in India’ contributed by Sankar takes a look at changes that are taking place in the sectors that are generating livelihood opportunities. As the broader definition of livelihoods encompasses other aspects of life than income enhancement, the chapter looks at the status of health and education of the people; challenges to poor people’s livelihoods because of climate change; their coping strategies and new initiatives that are being taken to meet the growing challenge to livelihoods of the poor by the government, the industries, and non- government bodies. It also takes a quick look at the social sector expenditures. In the chapter on policy and programmes, Ashok Sircar picks up from where the report left off last year. In his section ‘From Policy Paralysis to Policy Haste: The Pendulum Swings’, he captures the gradual shift in policy direction of the new government. He also discusses policy trends in livelihoods during the last four years, analysing major

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patterns and shifts in policies and programmes that are impacting livelihoods of specific communities that suffer from social exclusion, marginalization, and multiple deprivations. The section on ‘Reimagining Flagship Livelihoods Programmes’ by Suryamani studies two flagship programmes—the Mahatma Gandhi National Rural Employment Guarantee Programme under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005, and the National Rural Livelihoods Mission (Aajeevika). The chapter seeks to reimagine the scenarios in context of the ongoing restructuring and redesigning processes in order to recast the frameworks on which these two programmes are based, so as to enable better outcomes and stronger impact. In his chapter ‘Livelihoods Finance’, N. Srinivasan examines sources of finance made available to people to pursue income-generating activities and the small and tiny enterprises that enable them to earn life-sustaining income for their households. While retaining the focus on rural livelihoods, he examines the demand-side and supply-side considerations in livelihood finance. He identifies the current gaps in livelihoods finance and the nature of this gap for individual, group, as well as value-chain financing. He dwells on several policies and measures that the government and the Reserve Bank of India (RBI) have initiated to ensure that vulnerable people get access to finance and finally points the way forward for financing of livelihoods. Manas Ratha, in his chapter ‘Corporate Social Responsibility and Livelihoods’, makes an argument that while corporates should continue to support a wide range of important causes, a sharper focus on promoting livelihoods for the poor is better aligned with the abilities of companies. He explains how it is more likely to create a sustainable improvement in the quality of life of the poor in the long term. In the last chapter ‘Farmers’ Producer Companies: Need for Capital and Capability to Capture the Value Added’, Vijay Mahajan dwells on the role of farmers’ producers organizations (FPOs) and looks at the record of FPOs so far through case studies and practitioners’ feedback. Through an analysis of the theoretical framework of what makes an FPO high performing, he proposes improvements in practice in line with theory, looks at the changes needed in the law, proposes improvement needed in taxation regime, and a supportive policy and steps to be taken to ensure the life blood, that is, finance at various stages in the life cycle of an FPO. Bringing out the report is a sectoral effort. In addition to the small secretariat within ACCESS that supports the bringing out of the report, a number of stakeholders enthusiastically contributed to its successful publication. I am most thankful to the United Nations Development Programme (UNDP) and Ford Foundation for their continued support to the report. I am extremely happy that National Bank for Agriculture and Rural Development (NABARD); ICCo, a Dutch organization for International Development Co-operation; and Rabobank have come on board for supporting the report for the first time. I gratefully acknowledge the support provided by Poorest Areas Civil Society (PACS) Programme, an initiative of the UK Government’s Department for International Development (DFID) aimed at reducing the gap in wellbeing status between socially excluded groups in India and the rest of the population, for coming out with the chapter on FPOs. I take pride in my own teams to have provided anchor support to the authors, under the supervision of Suryamani, Senior Vice President, and duly supported by Puja and Joy for managing the process for streamlining the processes for coming out with the report smoothly and on time. For a small team overwhelmed with a multitude of priorities, to remain focused and provide excellent support to all SOIL processes makes me take great pride in their professional commitments. Oxford University Press (OUP) has come on board as the publishing partner for this sectoral initiative for the first time. I hope this new partnership would result in an ever wider circulation of the report. I am glad that with support from all, ACCESS has been able to bring out another high quality SOIL Report this year. Increasingly, the SOIL Report has become an important document widely referred to by policymakers, promoters, as well as practitioners, helping inform and influence policy. I hope that SOIL Report 2014 continues to serve its desired purpose and remains a worthwhile effort. Vipin Sharma CEO, ACCESS Development Services

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State of India’s Livelihoods Report 2014_FM.indd 14 21/11/14 1:51 pm 1 Overview of Livelihoods in India

Sankar Datta*

OUTLINE with almost no job security, no provisions for leave, or safety net for the future. In 2000, the average per capita The year 2013–14 has been a checkered year for the spending (considered a better indicator of income) of the livelihoods of weaker sections of the society in India. richest group in urban areas was 12 times that of the poorest While there have been several bright spots in the group.1 In 2012, it had increased by fifteenfold. In rural livelihoods situation, there has also been a widening gap, areas, the disparity between the haves and the have-nots worsening the situation for many. After several years of increased from seven times to nine times in these 12 years. slowing down, the economy has started looking up again. While we have improved on the Human Development There has been an increase in the number of jobs created. Index (HDI), in relative terms, India has slid down from The manufacturing sector, which had hit a low in the last the 134th position in the world to the 135th position. quarter of 2013–14, has started posting growth again. Forty three per cent of Indian children under five years Following a political change, the investment climate has of age are underweight, 48 per cent (that is, 61 million started improving. Many of the livelihood-focused large children) are stunted due to chronic undernutrition (as investments made in the last few years, including those per ToI, the number was 45.9 per cent in 2007),2 and supported by the World Bank, have started picking up. 79 per cent were anaemic. In spite of a fair amount of However, even now, over 94 per cent of the working investment being made for promoting and supporting population works in unincorporated, unorganized livelihoods of the disadvantaged people, a question that enterprises ranging from farm labour and pushcart vendors remains unanswered is: why are the Indian children facing to home-based diamond and gem-polishing operations, slow decline of IQ due to improper nutrition?3

* With active research support from Arunabha Bhattacharya, Vrutti, Bengaluru.

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This year was a year of political transition. After 10 opportunities. As livelihoods involve various aspects of years of coalition government of the United Progressive life apart from income enhancement, we would look at: Alliance (UPA), a new political arrangement has shaped (i) the status of health and education of the people; up as the National Democratic Alliance (NDA), with the (ii) how people are coping with increased pressure to Bharatiya Janata Party (BJP) alone emerging with absolute manage their livelihoods by migrating; majority. Hundred days after the new government was sworn (iii) how climate change is affecting the livelihoods of in, business sentiments seem to have perked up somewhat many people; and factory order books are improving as reflected in the (iv) what new initiatives are being taken to meet HSBC Purchasing Managers Index (PMI)4 that was up to this growing challenge by the government, the the level of 53 in July 2014 as against 51.5 in June 2014. industries, and other non-government bodies; and With official data showing the gross domestic product (GDP) (v) the social sector expenditures. during April–June 2014 at 5.7 per cent—the highest in ten quarters—business confidence is likely to look up further. A GDP growth of 5.7 per cent in the quarter ending June Sectoral Changes in Livelihoods 2014 has bought some cheer to the Indian economy. The economy was struggling under perceived policy paralysis, Crisis in the European Union area and general slowdown resulting in lower than 5 per cent growth of GDP at factor in the global economy, compounded by domestic cost at constant prices for two consecutive years, that is, structural constraints, weakening industrial growth in 2012–13 and 2013–14. As Figure 1.1 shows, a less than the context of tight monetary policy followed by the 5 per cent GDP growth for two consecutive years was last Reserve Bank of India (RBI) through most of 2011–12, witnessed a quarter of a century ago in 1986–7 and 1987–8 and inflationary pressures resulted in a reduction in (Ministry of Finance, Government of India 2014). livelihood opportunities for a large number of people. In this chapter, we will explore the changes taking As per some of the recent estimates, close to place in the sectors that are generating livelihood 50 per cent of the Indian population depends on

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0.0 1980–1 1981–2 1982–3 1983–4 1984–5 1985–6 1986–7 1987–8 1988–9 1989–90 1990–1 1991–2 1992–3 1993–4 1994–5 1995–6 1996–7 1997–8 1998–9 1999–2000 2000–1 2001–2 2002–3 2003–4 2004–5 2005–6 2006–7 2007–8 2008–9 2009–10 2010–11 2011–12 2012–13 2013–14

Figure 1.1 Growth in real GDP—an upward turn after the slump Source: Central Statistics Office (CSO).

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agriculture even now. A detailed analysis of the ‘pull’ factors that caused workers to move away from employment situation in India by Jayan Jose Thomas agriculture. Important among the latter is the expansion shows that the working-age population of India is of casual employment in public works, which (as per growing in size, the labour force is shifting away the current weekly status) rose from only 0.9 million in from agriculture, and, with higher education, workers 2004–5 to 6.6 million in 2009–10 and 6.7 million in are also seeking better-quality non-agricultural jobs 2011–12. These included employment created through (Thomas 2014). However, the trends between 2004–5 the Mahatma Gandhi National Rural Employment and 2011–12 indicate that employment generation in Guarantee Act (MGNREGA), which accounted for the country has been inadequate to meet this challenge. 2.4 million in 2009–10 and 2.9 million in 2011–12. Construction has virtually become the only source of Notably, casual employment in public works accounted incremental employment in rural India. for 69 per cent (3.7 million out of 5.4 million, as per the usual principal and subsidiary status [UPSS] workers) of In India, the share of agriculture and allied activities in gross domestic product (GDP) declined from 35.1 per cent in 1983 to the incremental non-agricultural employment generated 14 per cent in 2011–12. The share of these sectors in the country’s for rural females during the 2004–5 to 2011–12 period. total employment also fell during this period, from 68.2 per cent Between 2004–5 and 2011–12, total non-agricultural to 47.5 per cent. An absolute fall in the size of the agricultural employment in India increased by 48 million. Jobs in workforce was witnessed for the first time in India in the NSSO construction, which rose by 24 million, accounted for survey held in 2009-10. However, in this year this decline was half of this increase (Table 1.1). These construction observed only in case of females. It was in the NSSO survey in jobs, which were overwhelmingly in the rural areas, were 2011–12 that the size of male agricultural workforce registered an likely to be of poor quality. In contrast, employment in absolute decline for the first time in the country. (Thomas 2014). manufacturing increased by just 5.1 million in India There have been strong factors that may have pushed during the seven years after 2004–5 (Table 1.1). The rate workers out of low productivity agriculture, which in of job creation in this sector decelerated from 1.2 million recent years has become non-remunerative in many jobs a year between 1993–4 and 2004–5 to 0.7 million parts of the country. At the same time, there have been jobs a year between 2004–5 and 2011–12. Manufacturing

Table 1.1 Change in employment in India by sectors: Estimates for 2011–12 and the net change between 2004–5 and 2011–12 (in millions) Sectors 2011–12 Net Change from 2004–5 to 2011–12 RM RF UM UF All RM RF UM UF All 1. Agriculture and allied activities 139.1 76.2 6.2 3.0 224.4 –5.6 –26.7 0.6 –1.6 –33.3 2. Manufacturing 19.1 10.0 24.4 7.9 61.3 1.9 –0.4 2.9 0.7 5.1 2a. Textiles, garments, leather 4.3 3.7 8.5 4.3 20.9 –0.2 0.3 1.1 0.5 1.6 3. Construction 30.5 6.7 11.6 1.1 49.9 15.7 4.8 3.2 0.1 23.9 4. Trade, repair, hotels 20.1 3.0 29.9 3.6 56.6 2.3 0.0 4.3 0.4 7.0 5. Transport, communication 9.8 0.1 11.1 0.3 21.3 1.5 –0.1 1.2 0.0 2.6 6. Financing, insurance, real estate, 2.4 0.2 9.1 1.6 13.5 0.9 0.3 3.7 0.9 5.8 business services 6a. Computer and related 0.1 0.0 2.0 0.4 2.6 0.1 0.0 1.2 0.3 1.7 7. Community, social, and personal services 11.4 5.0 14.4 9.6 40.4 0.1 0.4 1.4 1.5 3.4 7a. Public administration and defence 2.4 0.3 4.9 0.7 8.3 –0.2 0.0 –0.4 –0.1 –0.7 7b. Education 4.3 2.7 3.9 3.6 14.5 0.8 0.6 0.7 0.7 2.8 7c. Other services and private households 2.7 1.3 2.5 3.8 10.4 –0.4 –0.4 0.3 0.4 –0.2 Total non-agricultural 95.3 25.5 102.9 24.4 248.1 22.4 4.9 17.0 3.8 48.0 Total employment 234.4 101.6 109.1 27.4 472.5 16.8 –21.8 17.6 2.1 14.7 Source: Thomas (2014). Notes: RM = Rural Male; RF = Rural Female; UM = Urban Male; UF = Urban Female.

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According to the Labour Bureau report (2014), it can ‘More than 50 million bonded labourers exist in the be seen that employment in non-farm sector at an overall country, Rajasthan government’s reform of labour laws are level has decreased during the quarter ending March pro-employer and for easy exploitation of labour.’ 2014 against the quarter ending December 2013. At —Jan Breman (Emeritus Professor at the University of Amsterdam, the sectoral level, the maximum increase in employment and the author of India’s Unfree Workforce: is seen in the automobiles sector, followed by the Of Bondage Old and New) in the Workshop on Bonded handloom/powerloom, leather, and gems and jewellery Labour Practices held on 23 June 2014 in sectors, during the reference period. Jaipur, Rajasthan Source: http://centreforequitystudies.org/workshop-on- Growth Not Translating into Livelihood bonded-labour-practices-on-june-23-in-jaipur-rajasthan Opportunities

If we use employment and unemployment as surrogates employment had, in fact, declined in absolute numbers, by for livelihood opportunities or, at best, employment- three million, between 2004–5 and 2009–10. However, generating activities, we find that there is a serious staging a recovery, 8 million manufacturing jobs were mismatch between the growth of the sectors and the added in the country during the next two years (that is, growth generated in them. This process of ‘jobless growth’, 2010–12) (Thomas 2014). The traditional service sector which has been discussed over the last several years, has activities—comprising trade and repair services, hotels, continued to dominate the situation even during this year. transport and communication, and community, social, During 1999–2000 to 2004–5, employment (usual and personal services—together generated 13 million jobs status) increased by 59.9 million persons (that is, from in India between 2004–5 and 2011–12 (Table 1.1). The 398 million to 457.9 million). However, the progress was rate of employment generation in these sectors, combined, slow during the 2004–5 to 2009–10 period, showing declined from 3.2 million a year between 1993–4 and a small increase by 1.1 million persons. It picked up 2004–5 to 1.9 million a year between 2004–5 and 2011– again during 2009–10 to 2011–12, adding 13.9 million 12. Other than construction, the only sector in which job persons to the workforce (Table 1.2). creation accelerated in the country after the mid-2000s The fall in unemployment despite marginal growth in was in finance, insurance, real estate, and business services, employment in 2009–10 and 2011–12 could also be on which also include computers and related activities. This account of changes in the aspirations of the young people. relatively high productivity sector added 5.8 million new An increasing proportion of the young population opts for jobs between 2004–5 and 2011–12 (Table 1.1). Generation of non-agricultural employment in India has accelerated after the middle of the first decade of this century. At Table 1.2 Employment and unemployment scenario in India the same time, the pace of this job creation has been inadequate to Method 1999–2000 2004–5 2009–10 2011–12 absorb the rising supply of potential workers, especially females. Persons and persondays employed (in millions) With the movement of workers away from agriculture, with PS + SS 398.0 457.9 459.0 472.9 their rising education levels this challenge will grow bigger in the CDS 336.9 382.8 400.8 415.7 coming years, particularly in the rural areas. (Thomas 2014). Persons and persondays unemployed (in millions) Table 1.1 gives an indication of people engaged PS + SS 9.2 11.3 9.8 10.8 in different sectors. But as it is well known by now, CDS 26.6 34.3 28.0 24.7 livelihoods of people, especially the poor, do not depend Job creation over previous period (in millions) on one kind of employment only. Therefore, these can be PS + SS – 59.9 1.1 13.9 seen as broad indicators only. CDS – 45.9 18.0 14.9 Taking a closer look at some of the sectors engaging Unemployment rate (in per cent) large numbers in 2013–14 would help us focus further PS + SS 2.2 2.3 2.0 2.2 on the employment growth in some of these sectors. CDS 7.3 8.2 6.6 5.6

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Table 1.3 Changes in estimated employment based on last four survey results (in thousands) S. No. Industry/Group Changes in employment during June 2013 Sept 2013 Dec 2013 Mar 2014 Mar 2014 over Mar 2013 over June 2013 over Sept 2013 over Dec 2013 over Mar 2013 1. Textiles including apparels 88 66 92 –56 190 2. Leather 18 5 13 3 39 3. Metals –38 12 –20 0 –46 4. Automobiles 8 7 –11 19 23 5. Gems and jewellery 8 –6 –6 1 –3 6. Transport –2 –2 –2 –3 –9 7. IT/BPO 3 61 17 –4 77 8. Handloom/Powerloom 0 0 0 4 4 Overall 86 143 83 –36 276 Source: Labour Bureau (2014).

higher education, whether that ensures them a job, rather latest four surveys starting from quarter ending March than participating in the labour market. This is reflected 2013 are shown in Table 1.3. in the rise in growth in enrolment of students in higher education from 4.9 million in 1990–1 to 28.5 million LIVELIHOOD IS MORE THAN INCOME in 2011–12. Similarly, gross enrolment ratio (GER) in OR PRODUCTIVITY ENHANCEMENT classes I–VIII has also risen from 81 in 1999–2000 to 103.9 in 2010–11 (Labour Bureau 2014). Livelihood is not just an increase in income or increase The present Quarterly Quick Employment Survey in productivity. Under the leadership of Mahbub ul Haq, is the 21st in the series and contains information scholars like Amartya Sen among others argued that pertaining to quarter ending March 2014 over people want to increase their income to achieve a better quarter ending December 2013. The present survey living, which is reflected in a longer, healthy life. Thus, shows decrease in employment in the selected sectors income should be looked at along with the effect it creates under study at overall level. At the sectoral level, the on a long healthy life and education (HDR 1990). highest employment has increased in the automobiles This led to development of the concept of HDI, sector, followed by the handloom/powerloom, leather, capturing longevity, health, and education along with and gems and jewellery sectors. However, in textiles income to understand the wellbeing of people. The first including apparels, transport, and IT/BPOs sectors, a Human Development Report launched in 1990 had an decline in employment is reported during the reference explicit purpose: ‘to shift the focus of development efforts period. Sector-wise employment changes during the from national income accounting to people-centred policies’. Since in order to manage one’s livelihoods one needs India’s Economic Survey for the year 2012–13 asks the more than just income or an asset base, the HDI is often pointed question ‘where will the good jobs come from?’ The considered a better index of the status of livelihoods of fact is that not enough well-paying jobs are being created. a population. In this measure of livelihoods as well, it A total of 23.33 million jobs were lost in agriculture and can be seen that though the value of HDI has improved 4.02 million jobs in manufacturing over the period 2004–5 slightly (from 0.554 in 2012 to 0.586 in 2014), India and 2009–10. has slipped from 134th position, among 184 reporting These losses were offset by a gain of 25.89 million jobs in non-manufacturing (primarily in the unorganized countries, to 135th position in this period. construction sector) and 2.7 million jobs in the services Given this understanding of livelihoods, we need to sector (Chandrasekhar et al. 2014). take a look at some of these dimensions to get a sense of the state of livelihoods in India.

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Income an increase over the past decade or that measure being above the all-India figures. Kerala, for example, had 34.1 per cent (a) On the income front, India is doing reasonably well. of persons living in rural areas being in the top 10 per cent The country’s per capita income, a gauge for measuring in 2011–12. It had a Gini coefficient of 0.35 in 2011–12, economic well-being, is estimated to have gone up by higher than the all-India (rural) number of 0.28. Haryana, 11.7 per cent to Rs 68,748 per annum in 2012–13 at which saw a 6.1 percentage point increase in the richest 10 current prices, compared with Rs 61,650 p.a. in the per cent people in its urban areas from 2004–5 to 2011–12, previous fiscal. The per capita income in real terms also saw an increase in urban inequality. The coefficient (at 2004–5 constant prices) during 2012–13 was at there rose from 0.33 in 2004–5 to 0.38 in 2011–12. The a level of Rs 38,856 as compared to the first revised all-India figure for urban areas in 2011–12 was 0.37. estimate for the year 2011–12 of Rs 38,037. For the current year, 2013–14, for which only preliminary Health estimates are available, per capita income (at 2004–5 prices) is being estimated to be Rs 39,961, against P. Sainath, while delivering the delivering the ‘Dr Verghese Rs 38,856 in the previous fiscal, according to the Kurien Memorial Oration on Sustainable Development’ latest data on national income as per some estimates organized by XLRI Jamshedpur, spoke of the three major by the Economic Times5 and Business Standard.6 crises of water, agriculture, and health that India is facing (b) According to some estimates of the World Bank, today. He mentioned how growing health expenses have per capita income in India has been consistently forced many to avoid medical assistance. According to growing steadily over the last decade.7 the third round of NSSO health survey, the number of (c) However, there is an increasing gap in income not only Indians who have stopped seeking medical aid purely due between the haves and have nots. Regional disparity to financial reasons has doubled in the recent past. The has also gone up. As reported in Business Today, ‘The number is more than double, particularly in urban areas, net worth of India’s billionaire community has soared because of the increase in distress peasant migration. This 12-fold in 15 years—enough to eliminate absolute has a direct implication on the livelihoods of people. poverty twice over in the country, where income Poor health can severely affect a household and the inequality is also on the rise, according to the IMF.’8 livelihood outcomes of its members. Apart from affecting individuals and their ability to work, other household According to Mint, states like Delhi, Haryana and members are likely to spend time devoted to caring for Kerala have a disproportionately large number of the the ill, leaving less time available for productive activities richest 10 per cent (Live Mint 2013). or education. This can have long-term effects on a These states witnessed an increase in inequality with the household, contributing to a deeper cycle of poverty. In Gini coefficient—a measure of inequality with 0 signifying addition, lack of assets, including education, can reduce perfect equality and 1 absolute inequality—either showing resilience to cope with health-related and other shocks, and inhibit access to healthcare services. (Eldis n.d.)

GDP Per Capita in US Dollars at Constant Prices Since 2000 Thus, for understanding the state of livelihoods, it is 1,200 important to pay attention to what is happening to some

1,100 1165 of the health indicators in the country: 1123.2 1086.05 1,000 1031.56 (a) India has achieved large gains in longevity over 900 947.75

885.17 the past decades, with life expectancy (65.5 years) 863.46

800 797.26 moving towards the Organization for Economic 740.12 700 687.31 Co-operation and Development (OECD) average 600 of 80.1 years (OECD 2013). However, India ranks 2004 2006 2008 2010 2012 2014 150th among 193 reporting nations, and well Figure 1.2 India's per capita GDP behind our neighbours, Sri Lanka, Bangladesh, Source: www.tradingeconomics.com | World Bank. Nepal, and Pakistan.

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(b) In terms of percentage of newborns weighing less basic education more ‘livelihood friendly’. It has also than 2,500 gm, India ranks amongst the lowest with highlighted several important principles: to look beyond 27.6 per cent newborns being underweight. The mere enrolment as a measure of educational success high proportion of low birth weight infants is mainly to assess what is actually learned; to not only focus on associated with maternal malnutrition before and learning substance but also developing continuing during pregnancy, poor health, and limited access to capacities to learn; and to give priority to basic education proper healthcare during pregnancy (OECD 2013). (Lawrence and Tate n.d.). Most policies focus on the fact (c) Infant Mortality Rate (IMR) has come down to 42 in that education systems are expected to be able to prepare 2012 from 58 per 1,000 live births in the year 2005. people for jobs. In that context, the following recent In India, nearly one in twenty children dies before trends are worrisome: his/her first birthday although the rates have fallen (a) Quality of education has been steadily going down sharply over the past few decades (OECD 2013). (ASER Centre 2013). While we are registering a India ranks 201st among the 223 reporting countries large number of students, they are neither equipped and a higher IMR than Pakistan and Nepal. to work in the emerging sectors nor competent to (d) Maternal Mortality Ratio (MMR) has declined work in the traditional sectors. from 301 per 1,00,000 live births in 2001–3 to (i) India’s school education success story has a flip 212 in 2007–9. The pace of decline has shown an side. More than half of the students in class V increasing trend from 4.1 per cent annual rate of in rural India could not read the text taught in decline during 2001–3 to 5.5 per cent in 2004–6 class II in 2011, even though around 97 per cent and further to 5.8 per cent in 2007–9. However, of children in the 6–14 age group are now enrolled while on several of these parameters India has in schools. Even after eight years of the ASER, the improved significantly in last few years, most of our learning levels have been shown to decline. neighbouring countries except Pakistan have done (ii) The proportion of all children in class V who can better on these parameters. read a class II level text has declined by almost (e) Thirty-eight per cent of Indian children below the 15 percentage points since 2005. Similarly, the age of five years were reported to be stunted, 45.9 proportion of students in class VIII who can do per cent underweight, and 79 per cent anaemic. divisions has declined by almost 23 percentage Among rural primary school children (between the points during the same period. While three out ages of six to eight years), it has been seen that the of every five students in class V were able to read relative risk of having an IQ less than or equal to 89 the textbooks prescribed for pupils who were in severe, moderate, and mild malnutrition was 3.5, three years junior in 2005, only one out of two 2.7, and 1.4 times for boys and in girls it was 2.4, is up to the task now. 1.7, and 1.4 times, respectively. Children in India 1. The net enrolment rate at the primary are among the shortest in the world. Widespread level was 84.53 per cent in 2005–6, which child stunting is a human development tragedy. increased to 99.89 per cent in 2010–11. Children in India are shorter, on average, than even 2. The GER at the primary level was 83.8 in children in Sub-Saharan Africa who are poorer, on 1990–1 and it increased to 95.7 in 2000–1 and average (Spears 2013). to 116.0 in 2010–11. For the middle/upper (f) Only 32 per cent of rural households have their own primary level, the GER was 66.7 in 1990–1, toilets, according to the recently released results of a which declined to 58.6 in 2000–1 and then large-scale survey conducted by NSSO in 2012. gradually increased to 85.5 in 2010–11. 3. The gender parity index in primary education Education has gone up from 0.76 in 1990–1 to 1.01 in 2010–11 and in secondary education the A large part of the education community today increase is from 0.60 in 1990–1 to 0.87 in very strongly argues that there is a need for making 2010–11.

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(iii) Students from lower economic and social damage caused to crops, houses, and public utilities is backgrounds have been found to have far lower Rs 1,805 crore (The New Indian Express 2104). test scores than their wealthier counterparts. India has nearly 700 million rural population directly Aside from economic classification, in India, depending on climate-sensitive sectors (agriculture, literacy among scheduled castes and scheduled forests, and fisheries) and natural resources for their tribes, which make up 24.4 per cent of India’s subsistence and livelihood. Further, the adaptive capacity population, is lower by a margin of 15–20 per of dryland farmers, forest dwellers, fisher folk, and cent than the national average. nomadic shepherds is very low. Climate change is likely to impact all natural ecosystems as well as socioeconomic Public expenditure on education since the late 1980s systems (State of Environment Report 2009). in India is around 4 per cent of the country’s GDP, According to a new report by the Asian Development ranking India 81st in education spending in global Bank (ADB), assessing the Costs of Climate Change and country-level rankings. India has not increased spending Adaptation in South Asia, up to 9 per cent would have been as necessary in order to extend the existing quality of stripped annually from South Asia’s economy on average by education to the large number of new enrolments. The 2100 if no further action is taken globally on climate change result has been a 20 per cent reduction of expenditure (Ahmed and Suphachalasai 2014). The report goes on to say per student on a per capita GDP basis over the 2003–6 that higher temperatures eventually reduce yields of desirable period. crops while encouraging weed and pest proliferation. Changes in the precipitation pattern (timing and amount) Hovering Clouds: Challenges increase the likelihood of short-run crop failures and long-run to Livelihoods due to Climate Change production declines, posing a serious threat to food security. Increasingly, anecdotal evidence (Economic Times 2014) The impact that this would have, especially on the livelihoods suggests that there are changes happening to our climate of the poor and marginalized, would be devastating to say that could be detrimental to the livelihoods of our people the least (Ahmed and Suphachalasai 2014). (Jha 2014, Wall Street Journal 2014). Floods have been a recurrent phenomenon in India and cause huge losses to lives, properties, livelihood systems, infrastructure, and ‘Food security may be at risk due to the threat of climate change leading to an increase in frequency and intensity public utilities. That 40 million ha of a geographical of floods and drought, thereby affecting the production of area of 3,290 lakh ha is prone to floods highlights India’s small and marginal farms’. high risk and vulnerability. On an average, every year —State of Environment Report (2009) 75 lakh ha are affected, 1,600 lives are lost, and the

President Pranab Mukherjee said the focus of government policies should shift from alleviation of poverty to its elimination and stressed that the benefits of economic development must percolate down to the poorest of the poor. He said the difference in approach is not mere semantics. ‘Alleviation is a process; elimination is a time-defined objective. In the last six decades, the poverty ratio has declined from over 60 per cent to less than 30 per cent. Even then, nearly one-third of our population still lives below the poverty line. Poverty has a face, which becomes unbearable when it scars the visage of a child’, he added. Mukherjee said the poor cannot, and will not, wait for yet another generation to see the very essentials of life—food, shelter, education and employment—being denied to them. The President noted that education was an essential part of economic development. ‘A sound education system is the bedrock of an enlightened society. It is the bounden duty of our institutions to provide quality education and inculcate the core civilisational values’, he added. ‘By the end of the 12th Five Year Plan’, he said, ‘we would achieve a literacy rate of 70 per cent. But would we be able to say that we have provided quality education and skills to our children to be good citizens and successful professionals?’ —Mukherjee (n.d.)

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While we write this report, news comes of how The number of people migrating to seek livelihoods floods have devastated Jammu and Kashmir and washed have been going up every year. Better road infrastructure, away the livelihoods of the people (Sphere India 2014). improved transportation, and enhanced mobile Preliminary estimates suggest that 1,01,36,063 citizens connectivity have all facilitated this increase. Formal were affected by floods which impacted communication, financial institutions as well as the government are waking accessibility, availability of supplies, agriculture, livestock, up to this changing scenario. Taking forward some of and assets losses (Wall Street Journal 2014). Earlier this the work initiated by non-governmental organizations year, we also saw catastrophic landslides in Uttarakhand. (NGOs) such as Ajjevika Bureau, which included Unseasonal rain (Hindustan Times 2014) and hailstorm attending to migrants’ identity-related issues, legal aid, destroyed crops in many parts of the country, including destination support, formation of workers’ collectives, Uttar Pradesh, Rajasthan, Madhya Pradesh, Maharashtra, financial services, social security, and providing healthcare Punjab, Gujarat, Uttarakhand, Haryana, and Andhra services, when not in their place of ‘regular’ residence, Pradesh. Standing crops on more than 20 lakh ha is feared many new services are being offered by mainstream to have been destroyed (Sphere India 2014). institutions as well. However, the challenge is large. History and anecdotal evidences suggest that poorer The 2001 Census showed us that India’s rural and disadvantaged groups around the world will suffer population had grown by more than 113 million since greatly from climate change, though it is worth recognizing 1991 and the urban by over 68 million. Rural India had that the rural poor have successfully faced pressures thus added 45 million people more than urban areas. The linked to climate unpredictability in the past. However, 2011 Census threw up some amazing numbers. Urban there is a need to have adequate responses in places to India’s increase was greater than that of rural India’s by minimize their vulnerabilities. For one, it may not always nearly half a million, a huge change—a role reversal of 45 be possible to replicate the past successfully and two hard- million, as pointed by P. Sainath. The 2011 Census shows won gains in the fight against poverty could be lost due to that a large majority of the growth in population in urban livelihoods getting affected. Responses to the challenges India has been due to migration (though there have been need to be based on their livelihoods. By understanding some arguments that it could also be because of inclusion the dynamics of poor people’s livelihoods, we can begin to of new areas under ‘urban’). The Census indicates that the understand how they will be affected by climate change, migration has been majorly for livelihood augmentation how they might respond with the resources they have, and due to work/employment (Sainath 2011). how these conditions can be reflected and built upon for The story of economic growth in India is entwined successful adaptation strategies. with the story of labour migration and of migrants, who leave the increasingly impoverished villages with a Increasing Migration to Make Ends Meet decadent farm economy in search of better lives (Sharma and Khandewal n.d.; Lakshmana 2013). This massive migration has happened almost in On July 5, 2014, sixty-one workers died in Chennai, the capital parallel to a deepening agrarian crisis. The 2011 Census city of Tamil Nadu, India, crushed under rubbles of an under- construction building. All the workers were seasonal migrants from shows that we have 95.8 million cultivators for whom rural Vizianagram and Srikakulum districts of Andhra Pradesh farming is their main occupation. That is less than 8 per and Gajpati district of Odisha. 20 of them were young mothers. cent of the population. (The figures were 103 million in As the farms failed to provide enough food, they came to Chennai 2001 and 110 million in 1991.) This roughly works out to work in the booming construction sector which promised higher to 1,970 odd farmers leaving agriculture a day. So where wages—Rs 175 more than what they were able to earn back home. are they going? Men made Rs 400 a day while women worked at Rs 225–275. The employment numbers quoted do not show where None held any employment contract, worked seven days a week for or how these people are eking out their livelihoods. In long hours, without safety equipment. None were entitled to any insurance or compensation in case of a death or injury. view of these significant numbers, there needs to be a —Indian Express (5 July 2014) greater focus in both policy and practice on the question of internal migration. Some authors argue that the

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government gives very low priority to internal migration the empowerment line to define a minimum acceptable due to a serious knowledge gap on its extent, nature, and standard of living. magnitude. This lack of a policy stand on internal migration and poor safeguards for labour interests has given way to Eight Basic Conditions Necessary for perverse labour market conditions thriving on abundant a Minimum Acceptable Standard of Living and unregulated access to cheap rural labour, easily 1. 2,100 (urban) or 2,400 (rural) calories, including recruited, circulated, and cast away at will. 60 gm protein and 40 gm fat, per capita per day In cities, migrants do not have access to reasonably 2. Access to clean cooking fuel and electricity priced, good quality public facilities for food, health, for lighting needs, based on minimum energy transportation, and financial services. They are also consumption levels known for paying much more than the local population 3. 215 (rural) or 275 (urban) sq. feet of acceptable housing for basic services. For lack of access to subsidized ration, 4. 70 (rural) or 135 (urban) litres per capita per day of expenses on food account for a majority of the living piped water supply costs (40 per cent). In such a scenario, migrants often 5. Sanitary latrine in rural households, and underground have inadequate nutritional intake, which affects their sewerage with wastewater treatment in urban ability to work and earn a livelihood in a sustainable households manner. 6. Access to an essential basket of primary, secondary, Long working hours, poor living and working and tertiary healthcare services conditions, and inadequate nutrition often become 7. Access to primary education and secondary breeding grounds for health problems. Migrants are highly education (substitutable with vocational training) for susceptible to tuberculosis, human immunodeficiency all children based on accepted norms virus (HIV), and a range of occupational health hazards 8. Insurance to cover income loss based on 2 per cent arising from the risky jobs they enter into. Access to premium-to-coverage ratio. healthcare is also highly compromised and limited to the informal health service providers who are easily accessible but unqualified, thereby exacerbating the vulnerabilities of the migrants further. SIGNIFICANT NEW EFFORTS TO SUPPORT THE LIVELIHOODS OF THE PEOPLE Over this period the employment elasticity in agriculture and manufacturing was negative in all the major states The Government of India is quite aware of this situation of India. Hence, the Twelfth Five Year Plan (2012–17) of livelihoods in the country. It has been taking up was prepared against the backdrop of the phenomenon various initiatives. While the first eight Five Year Plans of jobless growth in the organized sector and an increase looked at employment as a resultant of the economic in short-term migration. Both these facts were explicitly growth of the country, today we not only have a acknowledged by the Report of the Working Group on National Rural Employment Guarantee Act (NREGA), Employment, Planning & Policy for the Twelfth Five Year Plan (Government of India 2011). In its report the Working we also have several Missions directed to enhance the Group notes that in the last decade workers and households conditions of livelihoods of the people in India. These did not migrate permanently but only for a short period of include National Rural Livelihood Mission (NRLM), time, that is, temporarily. They did not sever their link to National Urban Livelihood Mission (NULM), National land in rural areas. Rural Health Mission (NRHM), and Sarva Shiksha (Chandrasekhar et al. 2014) Abhiyan (SSA), to name a few. The Institute for Financial Management and Research (IFMR) Trust through one There has been some debates and frameworks on of their research programmes has listed out more than how to address the issues highlighted. (The McKinsey 288 centrally and state-sponsored schemes for livelihood Global Institute 2014) has come out with the concept of promotion. The whole approach of development by the

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Government of India focuses on enhancing not only showing improvement in the last quarter of 2013−14 productivity and income but also health and education, and the first quarter of 2014−15. which are essential pillars for supporting the livelihoods of a large number. This livelihood-centric approach does Trends in India’s Social Sector Expenditure not look at itself in a programmatic manner—it attempts to build local community-led institutions for governing Central support for social programmes has continued these programmes. Recognizing that livelihood support over the years although most social sector subjects fall requires efforts of various departments to converge, within the purview of the states. Though there has these initiatives have been conceived as Missions, been a consistent rise in social sector expenditure by cutting across the boundaries of many departmental the government, the adverse fiscal circumstances in the structures. country arising from the impact of the global financial These programmes which have been in the pipeline crisis of 2008−9 and the European Union crisis of for last few years have started shaping up in many of 2010−12 resulted in a decline in government spending the states. However, many of these programmes are on the social sector in recent years. It has, however, picked still struggling with ‘teething’ problems even after up again in 2013−14 (Ministry of Finance, Government five to seven years of their operations. The pre-budget of India 2014). (See Table 1.4). Economic Survey 2014 had called for a revamp of the flagship Mahatma Gandhi National Rural Employment Additional Investment of CSR Guarantee Programme, to make it more development- oriented and to prevent its misuse. The Survey also said In February 2014, the government notified rules for there is a need for revamp or reorganization of some Corporate Social Responsibility (CSR) based on the of the ongoing social sector schemes, including the amendment to the Companies Act made last year, requiring NRLM, NRHM, and SSA. These have been discussed all companies beyond a specified size to make mandatory in detail in Chapter 2 ‘Policy and Programme’. The investments for social interventions. These rules specify a government is looking to restructure these programmes wide range of activities, including livelihood enhancement to take a target- and asset-linked approach to the and rural development projects, promoting preventive scheme, which will now focus on productivity and healthcare and sanitation, as well as making safe drinking asset creation. Some of the conditions have also started water available, as a part of CSR activities. The Ministry

Table 1.4 Central government expenditure (plan and non-plan) on social services and development Item 2008–9 2009–10 2010–11 2011–12 2012–13 RE 2013–14 BE 1. Social service a. Education, sports, youth affairs 4.27 4.15 4.56 4.73 4.38 4.38 b. Health and family welfare 2.09 2.00 1.98 2.02 1.81 1.99 c. Water supply, housing, etc. 2.54 2.39 2.35 2.11 1.88 2.20 d. Information and broadcasting 0.23 0.20 0.21 0.19 0.18 0.17 e. Welfare of SCs/STs and Other 0.41 0.43 0.58 0.64 0.54 0.62 Backward Class (OBCs) f. Labour and employment 0.28 0.22 0.24 0.26 0.26 0.29 g. Social welfare and nutrition 1.15 0.87 1.01 1.28 1.13 1.21 h. North-eastern areas 0.00 0.02 0.02 0.01 1.56 1.80 i. Other social services 1.55 1.67 1.66 0.20 0.19 0.16 Total 12.52 11.94 12.61 11.43 11.93 12.83 2. Rural development 4.56 3.77 3.51 2.88 2.49 2.57 3. Pradhan Mantri Gram Sadak Yojana (PMGSY) 0.88 1.11 1.87 1.48 0.70 1.30 4. Social services, rural development, and PMGSY 17.95 16.82 18.00 15.79 15.12 16.70 Source: Based on budget documents.

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of Corporate Affairs has notified the CSR rules and they migrate to the cities in search of employment. The major would come into effect from 1 April 2015. Qualifying cities, overloaded with a bulk of unskilled rural youth, enterprises are required to invest at least 2 per cent of their offer menial wage labour opportunities, with pitiable three-year average annual profit towards such works. conditions of living. According to the Indian Institute of Corporate Affairs, a minimum of 6,000 Indian companies will be required to undertake CSR projects in order to comply Decent Work Parameters with the provisions of the Companies Act, 2013, with 1. Employment opportunity many companies undertaking these initiatives for the 2. Adequate earning opportunity and productive work first time. Further, some estimates indicate that CSR 3. Decent hours commitments from companies can amount to as much 4. Stability and security of work 5. Combining space for work and family as Rs 20,000 crore. There are certain innovative CSR 6. Equal opportunity and treatment in employment initiatives emerging wherein companies have invested in 7. Safe work environment enhancing community livelihood by incorporating them 8. Social security into their supply chain. This has benefitted communities 9. Social dialogue and worker’s participation and increased their income levels, while providing these 10. (Not engaged in) work that needs to be abolished companies with an additional and secure supply chain. http://www.ilo.org/wcmsp5/groups/public/---dgreports/--- integration/documents/publication/wcms_229374.pdf Investments in Skill-building Programme

The Government of India has placed a renewed emphasis Livelihood promotion is often the most pressing on skill development in the services and manufacturing priority which needs to be tackled. However, many sectors, due to its twin focus on jobs and growth. A new people believe that there is no cheaper and better way of ministry has been formed to focus on skill development livelihood generation for the poorest people other than and entrepreneurship and has been given a budget of over investing in skill training in masonry, stone dressing, wire Rs 25,000 crore. This estimate comes from the fact that bending, painting, and plumbing. first Budget is expected to transfer most, if not all, skill India’s current education system places overemphasis on development and training initiatives under at least 21 cognitive learning for all. Many drop out, unable to cope different ministries, to the newly created ministry.9 with this by-rote education system. This system does not There currently exist many dichotomies. India needs to recognize that everyone is not suited for cognitive education. equip its youth with greater work skills. The present the Many will excel in a system which places a premium on education system churns out a mostly semi-literate workforce vocational education. Unequipped with education that without the requisite marketable skills in a globalized enables livelihood, the youth fall prey to poverty and crime. world. However, as Dipankar Gupta puts it, ‘Skill shortage It has been estimated that most of these 18 per is a squeaking wheel that won’t get greased as long as we cent people who have been through skill upgradation continue to link vocational training with school dropouts’ programme do not get into a situation where the (Gupta n.d.). According to the National Sample Survey’s minimum conditions of decent work laid down by the most recent estimate, only 18 per cent of those who have International Labour Organization (ILO) are met. passed out of these vocational schools have regular jobs. This minuscule number is bad enough, but there is more. About National Multi-skill Mission 60 per cent of this 18 per cent are employed as informal workers because their skills do not fit the organized sector. (a) Most skill-building programmes focus on organized The youth of the villages are not attracted to agriculture sector work (where the post-training placement as their potential livelihood option. To them, it is a can be shown), whereas 86 per cent of workers in seasonal, unpredictable, physically intensive job with low India are engaged in the unorganized sector. The remuneration. The village youth thus feel compelled to organized sector’s ability to absorb new workforce

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is less than the growth rate. What about skilling the people in the unorganized sector? Persons engaged in unseen work are, in a sense, some of (b) In a context like India, hard skills needs to the most deprived and vulnerable categories of those denied access to decent work. The official labour force participation be complemented with soft skills, including rate for men, which measures the proportion of the total their attitude towards work, dignity of labour, male population in the labour force, stood at 55.6 per accountability for quality of work, and so on. Most cent in 2011−12, unchanged from its level in 2004–5. of the currently available programmes focus on For women, already scarcely represented in India’s labour skills such as spoken English, use of smartphones, market, the labour market participation in the same period and so on. These other elements of skills need a very dropped from 29.4 per cent to 22.5 per cent. different way of delivery and cannot be delivered through regular classroom or workshop sessions. (c) Skill-building initiatives of the government are often Though a step in the right direction—the poor need being used as a camouflage of sourcing labour, paying more than bank accounts; they need to have income- them a stipend instead of wages or salary and PF, leave generating activities, which will enable them to make use benefits, insurance, etc. As the skill-builder has an of these bank accounts. incentive for placement of the trained persons, and the organized industry has a need to recruit labour (for Organization of this Year’s SOIL Report which there are costs, in addition to cost of training the new recruits), a collusion between them works out. The SOIL Report being an annual publication, we have (d) The aspirations of these students are, however, going focused on some of the significant phenomenon that through significant change. As a livelihood means affect the livelihoods of the poor in the present period. managing one’s life as one aspires to, the boundaries Therefore, having presented a picture of what people are of livelihoods are also changing very rapidly. doing for their livelihoods and how different aspects of (i) They are not willing to do the same kind of their life—health, education, income, and so on—are hard work as their parents did. getting affected, in this chapter, we will present some (ii) Their preferences are for some of the better- other significant areas of change in livelihood promotion, looking sectors. namely, the government, the corporate entities, financing (iii) Cost of their ‘conspicuous consumptions’ have of livelihoods, and some instances of progress in gone up, requiring more money to maintain institutions of people. the standard of life they aspire towards. With the increased attention of the Government of India on supporting the livelihoods of a large section Financial Inclusion and Livelihoods of the society, it has taken various policy initiatives. But having experienced a policy paralysis over the last With the hope of securing the livelihoods of the poor, there few years ending with a major political change, the has been an added emphasis on financial inclusion and new government is under pressure to make amends financial services as a key to the economic empowerment quickly. In Chapter 2, Sircar and Roul have explored of the poor, especially women. With this goal in mind, the implications of these policies on the livelihoods of Pradhan Mantri Jan Dhan Yojana, an ambitious scheme the people. They have also discussed the various Bills for comprehensive financial inclusion, was launched that have been passed by the Parliament based on these on 28 August 2014. This scheme was announced at the policies and various programmes formulated to give Independence Day speech on 15 August 2014. According effect to these policy intents. The budgets in the last few to estimates published in newspapers, 1.5 crore (15 million) years have also been analysed in this chapter to examine bank accounts were opened under this scheme on the if the government has been ‘putting their money where inauguration day. Banks which in the past were unwilling to their mouth is’ and whether there are the gaps between or unable to open basic bank accounts are now partnering the stated policy intent and the actuality. In this chapter, to open these accounts under this ambitious scheme. even possible areas of programme design that need to be

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reimagined have been explored for many of the flagship It has been recognized that the small and dispersed livelihood promotion programmes. producers need to come together to effectively engage Another significant change that has started taking in the market. There has been various efforts of building place is in the area of livelihood financing (Mahajan producer collectives, starting from promulgation of the 2005). Many of the financial institutions have started Co-operative Act in 1904. This was also followed by recognizing the limitations of the formal banking various types of specialized producer organizations: system to reach the poorer sections. With the serious such as Draught Prone Area Groups, the Large downturn of the micro-finance industry in the Area Multi-purpose Societies, Land Development recent past, this realization has become even more Banks, Multi-state Cooperatives, Mutually Aided prominent. But this has not diminished the need of Cooperatives, and Rayatu Mitra Groups. Recognizing financial services for supporting the livelihoods of the the limitations of the earlier cooperative society Acts, people. Financial institutions have taken up many new the Government of India amended the Companies Act, initiatives towards this. In Chapter 3, having laid down 1956, introducing Chapter IX A in the Act, coming the role of finance in livelihoods in today’s context, into force on 6 February 2003. This allowed the primary Srinivasan has explored different sources of finance. producers to form a company, following principles of He then examines the role financial institutions have mutual help. This has opened new vistas for supporting played and can play in this effort at inclusive growth, the livelihoods of the primary producers, especially supporting a large number of livelihoods. Having farmers. Mahajan in Chapter 5 has extensively briefly described the livelihood loans outreach, the dealt with the potential of these forms of producer author has identified gaps in livelihood finance collectives, both from a strong theoretical perspective including challenges in the cost of intermediation. The and experiences on the ground. In his attempt to chapter then examines government policy and strategy explore how producer companies can become high- in finance for livelihoods, briefly touching upon role of performing, Mahajan has suggested changes needed microfinance and livelihoods. in the law, especially focusing on member voting The other significant change that has emerged in provisions and improvement in the taxation regime the space of livelihood promotion is the enhanced and supportive policy. He has also explored how the engagement of corporate entities in the delivery of new emergent possibilities of enhanced CSR can be public goods, one among them being livelihood steered towards building a symbiotic relationship with support. An amendment in the Companies Act, producer companies. 2013 (Section 135), has made it mandatory for many Thus, this year’sSOIL Report presents to the reader, companies to undertake CSR. This is opening up new not only the present state of the livelihoods of the people possibilities for promotion or support of livelihoods but also some of the emerging possibilities. of the weaker sections of the society. In Chapter 4, Manas Ratha has presented the picture of this new opportunity. The chapter starts with a discussion on NOTES what is CSR and illustrates various approaches of CSR with several case studies towards the end of the chapter. 1. Subodh Varma, ‘Income Disparity between Rich and Poor It looks at different forms of corporate philanthropy Growing Rapidly’, Times of India, 28 July 2013, http:// and strategic philanthropy. Having presented a picture timesofindia.indiatimes.com/india/Income-disparity-between- of the State of Indian CSR and Companies Act, 2013, rich-and-poor-growing-rapidly/articleshow/21410981.cms Ratha has identified how companies can benefit by (last accessed on 23 October 2014). 2. UNICEF Report on Nutrition, http://www.unicef.org/india/ focusing their CSR on livelihoods and how to go about nutrition.html (last accessed on 23 October 2014). developing a strategic corporate philanthropy program. 3. See discussion in Anatoly Karlin, ‘The Puzzles of Indian IQ: A Having looked at opportunities for CSR in supporting Country of Gypsies and Jews’, http://akarlin.com/2012/08/ livelihoods, the chapter also highlights some of the key the-puzzle-of-indian-iq-a-country-of-gypsies-and-jews/ (last challenges. accessed on 23 October 2014).

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4. The HSBC PMI is an indicator of the economic health of Labour Bureau. Quarterly Report on Changes in Employment in the manufacturing sector based on five major indicators: new Selected Sectors. Chandigarh: Labour Bureau, Ministry of orders, inventory levels, production, supplier deliveries, and Labour and Employment, Government of India, 2014. the employment environment. Lakshmana, C.M. ‘Population, Development, and Environment 5. http://articles.economictimes.indiatimes.com/2014-02-07/ in India.’ Chinese Journal of Population Resources and news/47126380_1_2004-05-prices-lakh-crore-capita-income Environment, 2013, 11(4): 367–74. 6. http://www.business-standard.com/article/economy-policy Lawrence, John and Sean Tate. ‘Basic Education for Sustainable /india-s-per-capita-income-rises-to-rs-5-729-per-month- Livelihoods: The Right Questions?’ United Nations 113020700995_1.html Development Programme International Working Group 7. http://www.tradingeconomics.com/india/gdp-per-capita on Sustainable Livelihoods. Pearl River, New York: UNDP/ http://www.tradingeconomics.com/india/gdp-growth SEPED/Sustainable Livelihoods, n.d. 8. http://businesstoday.intoday.in/story/indian-billionaires- Live Mint. 6 November 2013. http://www.livemint.com/ wealth-can-end-countrys-poverty-twice-imf/1/202950.html Opinion/NZAj3VHXHLDhRS2xdLi76I/The-challenge- 9. http://articles.economictimes.indiatimes.com/2014-07-05/ ofinequality-in-India.html. news/51092099_1_prime-minister-narendra-modi-ministry- Mahajan, Vijay. ‘From Microcredit to Livelihood Finance’, workforce Economic and Political Weekly, October 2005, XL(41). Ministry of Finance, Government of India. Economic Survey 2013–14. New Delhi: Ministry of Finance, Government of REFERENCES India, 2014. Mukherjee, Pranab. Addressing to the Nation on the Eve of Ahmed, Mahfuz and Suphachol Suphachalasai. Assessing the Independence Day (n.d.). Costs of Climate Change and Adaptation in South Asia. ADB OECD. Health at a Glance 2013: OECD Indicators. OECD Publishing, 2014. Publishing, 2013. ASER Centre. Annual Status of Education Report (Rural) 2013. Sainath, P. Hindu. 25 September 2011. http://www.thehindu. New Delhi: ASER Centre, 2013. com/opinion/columns/sainath/census-findings-point- Business Standard. Editorial Comment: ‘Not as Poor? New World todecade-of-rural-distress/article2484996.ece. Bank Data Could Skew Poverty Debate’, Business Standard, Sharma, Amrita and Rajiv Khandewal. http://cafedissensus.com/. 7 August 2014. n.d. http://cafedissensus.com/2014/08/01/theinvisible-city- Chambers, Robert. Rural Development: Putting the Last First. makers-of-migration-and-migrant-workersin-india/. Burnt Mill, Harlow, Essex, London, England: Longman Spears, Dean. Live Mint. 4 July 2013. http://www.livemint. Scientific and Technical, 1993. com/Opinion/xj6CrTVwZZwZg0EYRQEc0M/Coming- ———. Whose Reality Counts? Putting the First Last. London: upshort-in-India.html. Intermediate Technology Publications, 1997. Sphere India. ‘Secondary Data Analysis: Jammu and Kashmir Chandrasekhar, S., Mousumi Das, and Ajay Sharma. ‘Short-Term Floods’. New Delhi, 2014. Migration and Consumption Expenditure of Households ———. ‘Situation Report -1: Unseasonal Rain and Hailstorm’, in Rural India.’ Mumbai: Indira Gandhi Institute of 2014. Development Research, March 2014. State of Environment Report. Ministry of Environment and Forests, Economic Times. 16 September 2014. http://articles.economictimes. Government of India, 2009. indiatimes.com/20140916/news/53983318_1_ The McKinsey Global Institute.From Poverty to Empowerment: ecosystemhimalayas-services. India’s Imperative for Jobs, Growth, and Effective Basic Services. Eldis. Eldis. n.d. http://www.eldis.org/go/topics/resource-guides/ Mumbai: The McKinsey Global Institute, 2014. livelihoods-and-social-protection/health/introduction#. The New Indian Express. 8 September 2104. http://www. VBVkjPmSyUI. newindianexpress.com/editorials/Adopt-a-Comprehensive- Gupta, Dipankar. Times of India. n.d. http://blogs.timesofindia. Policy-to-Control-Floods/2014/09/09/article2421127.ece. indiatimes.com/toi-edit-page/why-gaining-a-vocationalskill- Thomas, Jayan Jose. ‘The Demographic Challenge and is-no-guarantee-of-a-job-in-india/. Employment Growth in India’, Economic and Political Weekly, Hindustan Times. 12 March 2014. http://www.hindustantimes. 2014: 15–17. com/india-news/hailstorms-unseasonal-rains-hit-crops- Wall Street Journal. 12 September 2014. http://blogs.wsj.com/ inseveral-states/article1-1193964.aspx. indiarealtime/2014/09/12/kashmir-flood-disaster-how- Jha, Kishore. ‘Dropping Out for a Drop of Water’, Economic and thenext-one-could-be-avoided/. Political Weekly, 2014.

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Ashok K. Sircar and Suryamani Roul

FROM POLICY PARALYSIS TO POLICY policies and programmes that are impacting livelihoods HASTE: THE PENDULUM SWINGS of specific communities that suffer from social exclusion, marginalization, and multiple deprivations. Introduction The union budget of the last year has been studied from a livelihoods perspective to examine trends in The new government at the centre has come with a allocation and direction of government resources. Since spectacular popular mandate and brought in its wake the mind of the new government was first revealed in its new expectations for the poor, the vulnerable, and the maiden budget, it is imperative for this chapter to look marginalized. However, just because it has arrived from at the latest budget and see where it substantially deviates the other end of the political spectrum, riding on a huge from the past. anti-incumbency wave, does not necessarily mean that Under United Progressive Alliance (UPA) II, the the prevailing policies and programmes on livelihoods government dragged its feet on several major policies such will be abandoned altogether. It could prove to be yet as the Manual Scavengers Bill, the Land Acquisition Bill, another exercise in continuity and change. the Street Vendors Bill, and the Companies Act Bill—all Last year, the State of India’s Livelihoods (SOIL) Report of which had significant implications for livelihoods for captured the policy paralysis on a number of major the poor. Fortunately, before the last Parliament was livelihoods issues, as well as a major debate on foreign dissolved, most of these Bills were passed to become direct investment in retail and its livelihood impact. Acts, thus ending at least one major phase of uncertainty. Keeping the periodicity of the SOIL Report in mind, this In this context, this chapter also discusses the status of chapter picks up from where the report left off last year these policies at the implementation phase. Two other and captures the gradual shift in the policy direction of the Bills which could not make it as Acts were the Mining new government. It discusses policy trends in livelihoods Amendment Bill and the Agricultural Biosecurity Bill; during last year, delineating major patterns and shifts in these too have been discussed in the chapter.

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The Apprentice Amendment Act, 2014, is the only There is increasing recognition in India today that the new legal instrument of the new government so far in LGBT (Lesbian–Gay–Bisexual–Transgender) community the domain of livelihoods, passed within a week of its deserves a dignified livelihood free of social stigma and introduction in the Parliament. Since the Act clearly refers marginalization. The Honourable Supreme Court in its to livelihoods of the young people in the organized sector, judgement on 14 April 2014 has recognized transgender as it is particularly relevant for inclusion in this chapter. the third gender and has asked the central government to A recent development of significance has been the notify it as economically and socially backward.1 This must be announcement made by the Genetic Engineering regarded as a landmark step towards their social integration. Approval Committee allowing GM trials (field trial of genetically modified seeds) in five major crops including Budget Analysis the BT Brinjal. Since this announcement has far-reaching implications, it is taken up for discussion here. The new government had only 45 days to prepare the annual In the meanwhile, between the last report and this one, budget for the year 2014–15. Having critiqued the successive the committee headed by C. Rangarajan has recommended budgets of the UPA, the new government led by Bharatiya a method of determining a new poverty line for India. Janata Party (BJP) had raised very high expectations in all Since the previous SOIL Report spoke of the formation of quarters of substantive policy shifts through the budget. the Rangarajan Committee and its report is now in public Therefore, the obvious question is: Has the budget fulfilled domain, the chapter dwells on it briefly. the expectations? Our take on the budget is determined by A new addition to the basket of policies that impact its thrust (or the lack thereof ) on livelihoods of the poor, livelihoods is the National Youth Policy (NYP) 2014 vulnerable, and the marginalized. This in budget terms adopted by Government of India at the end of 2013. would mean budget allocation to existing programmes, The NYP aims at preparing the youth (15–29 years) announcement of new programmes, and shift in priorities for a productive and meaningful working life through on programmes/missions that would have a direct impact on skill development, community orientation, and decent livelihoods. Table 2.2 shows the trends in budget allocation work. Given that amongst the marginalized, deprived, on major livelihoods programmes. and excluded communities, persons of this age group are The budget allocation to major existing programmes significant contributors to household income streams, clearly reflects continuity from the past. Almost all of the the NYP merits space in this chapter. major programmes received the same level of allocation Before an analysis of livelihoods policy is embarked this year, the difference accounting for inflation being upon, it is important to reiterate that livelihood marginal indeed if not negative in some cases. It is in fact continues to be an elusive domain many aspects of surprising that some key programmes of the government which are stridently debated with no wider consensus like the Sarva Siskha Abhiyan (SSA), Midday Meal emerging. However, for the purpose of this report, we Scheme (MDM), National Rural Livelihood Mission will focus on any policy intervention that impacts the (NRLM), and Rashtriya Krishi Vikas Yojana (RKVY) have capacity of the poor to earn a living with dignity and received exactly the same allocation as the previous year. has an implication for the wider economic well-being of To understand this, we looked at the revised estimate of individuals and families. Well-being is here defined in 2013–14 for these programmes and we found that the terms of not only income and assets but also capabilities Revised Estimates (RE) 2013–4 for RKVY, SSA, NRLM, and voice, that is, the ability to make claims and assert and MDM are Rs 7,089 crore, Rs 26,058 crore, Rs 2,641 rights. crore, and Rs 12,189 crore, respectively.2 Except NRLM, To begin with, we continue with the practice of the REs are typically 80–85 per cent of the original identifying and expanding the list of people whose estimates. However, this could not possibly be the reason livelihoods concern us. In previous issues of this report, we not to receive an enhanced allocation. It is difficult to made lists of such populations, as shown in Table 2.1. In understand the rationale for such static allocation. The this year, we would like to add one important category— budget utilization under NRLM is in fact the lowest ‘transgender’. among all major programmes meant for the poor. Our

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Table 2.1 Categories of people facing livelihood challenges

S. No. Description Per cent of population and numbers 1. Persons below poverty line 25.7 per cent of rural population (Rural) (Planning Commission) (a) 2. Forest dwellers of India 93 million (Ministry of Tribal Affairs) (b) 3. Absolutely landless families 18–20 million (Rawal 2008) (c) 4. Street vendors 10–12 million (Bhowmick) (d) 5. Manual scavengers 1.0 million (Report of the Sub Group on Safai Karamcharis 2007) (e) 6. Single women 25.9 million (f) 7. Women farmers 90 million (g) 8. Disabled persons 21 million (h) 9. Seasonal and casual workers in informal sector 140 million (29 per cent of total workforce) or informal jobs in the formal sector 10. Vulnerable workers (as per ILO definition) 80 million (17 per cent of total work force) 11. Transgender 2.5–3.0 million Sources: a. Planning Commission 2013, available at http://planningcommission.nic.in/news/pre_pov2307.pdf (accessed on 10 August 2013) b. Ministry of Tribal Affairs, May 2013; available athttp://www.tribal.nic.in/WriteReadData/CMS/Documents/20130530032352298 4783TribalProfile.pdf (accessed on 9 August 2013) c. Rawal, Vikas, 2008, ‘Ownership Holding of Land in Rural India’, Economic and Political Weekly, 8 March 2008, pp. 45, projected with rural households in Indian Census 2011 d. Bhowmick, S., 2005, ‘Street Vendor in Asia: A Review’, Economic and Political Weekly, 40(22–23): 22–62 e. Report of the Sub Group on Safai Karamcharis 2007, submitted to Working Group on Empowerment of Scheduled Castes, for the XIth Five Year Plan, New Delhi, p. 9 f. Indian Census 2001, available at http://censusindia.gov.in/Census_And_You/age_structure_and_marital_status.aspx (accessed on 15 August 2014) g. Indian Census 2001, available at http://censusindia.gov.in/Census_And_You/economic_activity.aspx (accessed on 15 August 2014) h. Indian Census 2001, available at http://censusindia.gov.in/Census_And_You/disabled_population.aspx (accessed on 15 August 2014) Note: The ILO defines ‘vulnerable workers’ as own account workers as well as those who contribute to family enterprises. This now forms part of the sub-Millennium Development Goal, ‘Achieve full and productive employment and decent work for all, including women and young people’, which itself forms part of Goal 1, ‘Eradicate extreme poverty and hunger’. See http://mdgs.un.org/unsd/mdg/Metadata. aspx?IndicatorId=0&SeriesId=760

section on NRLM later in this chapter would seek to of which are working in agriculture and or some kind of understand this gap. Suffice it to say here that the most agro-processing activity. hyped rural development programme in the last couple of At the outset it may be pointed out that apart from years still appears to be taxiing; it is yet to take off! the watershed programme, namely, Neerachal and the Did the budget spring new initiatives for the poor? Pradhan Mantri Krishi Sinchay Yojana, allocations in all There seem to be several; for example, a new irrigation other programmes are clearly to start an initiative on a scheme called, Pradhanmantri Krishi Sinchay Yojana (Prime pilot scale and not for reaching out to a large constituency. Minister’s Agricultural Irrigation Scheme) was launched An allocation of Rs 100–500 crore cannot be meant for a with a budgetary allocation of Rs 1,000 crore. There are a national-level programme. It is unfortunate though that the few more. Box 2.1 gives a list of these new initiatives. fact that these allocations are only meant for pilot or pre- Among these new initiatives, the most far-reaching pilot initiatives is not explicitly stated anywhere. With these is probably the announcement that landless agricultural small new initiatives, the earlier attempts to consolidate a labourers’ groups will now be receiving agricultural large number of small programmes into a few well-knit large credit through National Bank for Agricultural and Rural programmes seem to have been given a go by. Furthermore, Development (NABARD). This hopefully would include there does not appear to be any urgency to move away the large number of women’s groups as well, almost all from quota- and allocation-based programming towards

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Table 2.2 Budget allocation for existing programmes, 2011–15 (Rs crore)

Key areas 2014–15 2013–14 2012–13 2011–12 Impacting population Agricultural credit* 8,00,000 7,00,000 5,75,000 4,75,000 Farmers Drinking water and sanitation 15,520 15,260 14,000 11,000 Mostly rural population Rastriya Krishi Vikas Yojana (RKVY) 9,954 9,954 9,217 7,860 Farmers, associated people Bringing Green Revolution to Eastern India 1,000 1,000 1,000 400 No clarity (BGREI) Integrated Child Development Services (ICDS) 18,691 17,700 15,850 10,032 Children in the 0–6 age group, pregnant and lactating mothers National Rural Livelihoods Mission (NRLM) 4,000 4,000 3,914 2,921 70 per cent of rural women National Midday Meal Scheme (MDM) 13,215 13,215 11,937 10,564 All children in the 6–14 age group attending school National Social Assistance Programme (NSAP) 10,635 9,541 8,447 6,165 Old age, disabled people Right to Education/Sarva Siksha Abhiyan (SSA) 27,758 27,258 25,555 20,998 All public schools National Health Mission (previously NRHM) 23,854 21,239 20,822 18,115 Everyone dependent on public healthcare National Rural Employment Guarantee Scheme 34,000 33,000 33,000 31,000 125 million job card (NREGS) holders Food security subsidy 1,15,000 90,000 75,000 72,823 75 per cent of rural and 50 per cent of urban population Note: *agricultural credit is provided by the banks, union government sets the target Source: Compiled by the authors from budget highlights of 2014–15.

rights/entitlement-based programmes. The government that impact livelihoods of nearly 500 million people still seems to favour a patron–client approach over a rights- almost on a daily basis. The budget’s silence on these centric approach. aspects is astonishing because the Economic Survey 2013– The budget is completely silent on sustainable 14 published just prior to the budget carried a statement development, wildlife, forests, biodiversity, and ecology as profound as: ‘While 2015 will be a landmark year for

Box 2.1 New initiatives proposed in the 2014–15 budget

S. No. Initiative Budget allocated Focus area 1. PM Krishi Sinchay Yojona Rs 1,000 crore To bring irrigation to rain-fed areas 2. S.P. Mukherjee Rurban Mission Not declared To provide urban facilities in rural areas 3. D. D. Upadhay Gram Jyoti Yojona Rs 500 crore To bring power supply to rural areas 4. Village Entrepreneurship Programme Rs 200 crore To support village youth towards entrepreneurship 5. Neeranchal (Watershed Dev) Rs 2,142 crore Watershed development 6. Van Bandhu Kalyan Yojona Rs. 100 crore Welfare scheme for tribals under Tribal Sub Plan 7. Varishtha Beema Yojona Not declared To revive the insurance plan for pensioners 8. Beti Bachao Beti Padhao Yojona Rs 100 crore To support girl child education 9. Kisan TV Rs 100 crore A TV channel for farmers’ education 10. Credit for Bhumi Heen Kisan joint To provide credit to landless farmers’ groups farming groups Source: Compiled by the authors from budget highlights of 2014–15.

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sustainable development and climate change policy, 2014 the railway tracks outside the purview of the law, while is the last chance for all stakeholders to introspect to be it is well-known that the Indian Railways is the single- able to wisely choose the world they want post 2015.’3 largest institutional employer of manual scavengers in It is not clear if the budget’s indifference to the the country. Also, the Act does not promise any financial challenges of sustainable development and climate change assistance, central or state, towards converting insanitary is a deliberate manifestation of the policy orientation of latrines to modern sanitary toilets. This may actually this government or simply an oversight. It seems to be the impede implementation. former than the latter, if the easy mood for environmental Both the central and state governments have to make clearances to large infrastructural projects by the Ministry rules for implementation within 90 days of the Act. of Environment and Forest and the proposed dilution of Although the central government has notified that the the judicial powers of the National Green Tribunal are Act has come into force from 6 December 2013, there is signals to go by. Such a radical growth-driven approach no progress yet on rules of implementation. at the cost of environmental sustainability could spell disaster for the very survival of millions of people within Street Vendors (Protection of Livelihoods a very short period of time. and Regulation of Street Vending) Bill, 2012 The budget had two important observations to make on NRLM and MNREGA which will be discussed later The Street Vendors Bill was introduced in Parliament in this chapter. in September 2012 and had a similar trajectory as that of the Manual Scavengers Bill. After the usual round of Bills Passed in Parliament that standing committee recommendations and departmental Have a Livelihood Impact revisions, the Bill was finally passed in the Lok Sabha in September 2013 and in the Rajya Sabha in February As mentioned earlier, a number of bills affecting the 2014. The Act seeks to legalize street vending in towns livelihoods of the poor were pending in Parliament for a and cities under certain conditions with the major long time. During the course of the last 10 months or so, exception of railway land and in trains. The Act asks the many of these were passed as Acts. state governments to create norms of vending zones for the municipalities, and also create a scheme for street Prohibition of Employment as Manual vendors. A person engaged in street vending has to Scavengers and Their Rehabilitation Bill, 2012 register with his/her Town Vending Committee of the city municipality and then get a vending certificate for This Bill was introduced in September 2012 and, a legally pursuing the trade. year later, in September 2013, it was passed by the Lok Needless to say, this Act has opened a new chapter in Sabha and the Rajya Sabha. The Act totally prohibits the lives of the street vendors as the profession now has manual scavenging under all circumstances and makes legal legitimacy over and above the social legitimacy it the authorities and people who use insanitary latrines, already enjoyed. However, the road ahead is still difficult. and therefore use manual scavengers to clear their toilets, The biggest weakness in the Act is that it does not specify completely responsible for changing to the modern any norm for creating vending zones, restrictions, issuing sanitary toilets. The Act also seeks to rehabilitate the vending certificates, renewal, etc. The state governments manual scavengers. To ensure strict enforcement of law, are empowered to create their own norms for the towns a central monitoring committee and state- and district- and cities. This will lead to wide variation in the schemes level vigilance committees have to be formed. The Act across states, and will possibly lead to further conflicts has declared that use of insanitary latrines and manual between the street vendors and local bodies. Another scavengers is a non-bailable offence with penalty and weakness of the Act is that it does not require the state imprisonment. However, the Act does not categorize governments to consult any stakeholder in formulating the direct discharge toilets installed in the trains of the street vending plans. It is therefore likely that the plans Indian Railways which keeps the manual cleaning of may not be prepared in a fair and transparent manner.

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The Right to Fair Compensation a case, by providing an equivalent amount of land to and Transparency in Land Acquisition, be brought under agriculture. Further, the Act asks Rehabilitation and Resettlement Bill, 2013 the state governments to determine the limit to which agricultural land can be acquired for non-agricultural This is probably one of the longest pending bills that purposes. was finally passed in September 2013 by the Lok Sabha Another section has elaborated upon the typology of and the Rajya Sabha. The Bill’s journey started in 2007 losers that includes the land losers and those would lose as two separate policies: one on land acquisition and their livelihoods. The latter includes petty shop owners, the other on fair compensation, rehabilitation, and vendors, tenants, agricultural labourers, agro processors, resettlement. Finally, after many deliberations both and the like. Linked with this categorization is the inside and outside the Parliament, the Bill got passed as attempt to clearly articulate the nature of compensation one law incorporating both land acquisition as well as and rehabilitation package as well, including money, compensation, resettlement, and rehabilitation. housing, land, livestock, credit, and others as applicable Many features of the new law deserve attention. Last in the two schedules attached to the Act. year’s SOIL Report had a detailed discussion on the Several sections have dealt with the transparency and various clauses of the Bill. Box 2.2 provides a glimpse fairness of the intent and process of acquisition that has of the main features of the Act. The Act has tried to always remained opaque and mysterious in the past, to address multiple issues related to fairness, transparency, say the least. This can be seen in articulating an SIA, limits, and accountability. For example, there is a publication of it, review of the SIA by an expert group, section on food security which is aimed at restricting two layers of checks to determine the public purpose, acquisition of agricultural land, especially multi-crop transparency measures in the acquisition processes by land. The Act does this in two ways—one, by restricting conducting public hearing, consent of land losers, use the acquisition of multi-crop land to last resort and, of acquired land only for the purpose stated during two, in case land acquisition is unavoidable in such acquisition, establishing a national monitoring body, and others. These measures, if implemented, would certainly herald in a new era in land acquisition. Box 2.2 Main features of the RFCTLARR Act, 2013 There are, however, serious concerns about the 1. Social Impact Assessment (SIA) is mandatory for all land implementability of the Act. First, the Act has become acquisition. Public hearing a must as part of the SIA. extremely techno-bureaucratic in its composition. 2. All acquisition to accompany compensation and Although, many of the processes are well-intended, the rehabilitation to affected persons. 3. A separate category of livelihood losers and land losers entire process of land acquisition, from the start to the created. finish, complying with all the features, may take years 4. Compensation to be four times the market price of land and this can be a disincentive to the government officials to the land losers. as well as businesses. Second, the SIA can go the way 5. In case of land acquisition for private companies, consent of Environment Impact Assessment (EIA), where the of 80 per cent of land owners mandatory; no consent outcomes become too technical, expert-driven, insular, required for public sector units (PSUs). and can easily be manipulated to suit the business 6. The government may temporarily acquire land for establishment. And even if the SIA is done well, the expert three years without any provision for resettlement or rehabilitation. group, usually hand-picked by government, would still 7. When multi-crop land is acquired, an equivalent have the final say, and they could override the findings amount of land is to be dedicated to food security. of the SIA. That apart, much of the processes are still 8. A detailed rehabilitation award for livelihood losers. district collector driven, and there is no local oversight Source: Compiled by the authors from the Right to Fair mechanism on the district collector. Compensation and Transparency in Land Acquisition, Rules for implementation of the Act have already Rehabilitation and Resettlement Act, 2013. been framed and finalized after public consultations, and therefore the ball is now set to roll. However, there are new

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pressures being brought upon by industrial and business The Corporate Social Responsibility lobbies as well as some state governments to change Clause in the Companies Act, 2013 some of the key clauses of the Act. Bloomberg TV in its programme named ‘Political Capital’ on 27 July 2014 The Companies Act Amendment Bill, 2011, was finally has captured these concerns very well. The government passed in August 2013. Our interest in the Companies seems to be in a listening mode as it has promised huge Act is confined to the section on what is commonly investments in infrastructure projects where this Act in its called Corporate Social Responsibility (CSR). The present form can present some obstacles. Some of these section on CSR was designed to promote corporate demands from the industries and state governments are funding to human development and social welfare shown in Box 2.3. projects, much of which are focused on livelihoods. As These voices from the industry gained amplitude after the it stands today, the rules have been framed and notified Rajasthan Government drafted its own Land Acquisition by the government, meaning that the Act is already in Bill, 2014, and published it for public comments and review. force. The Act makes CSR a statutory obligation of The Bill does not have any provision of SIA. In addition, companies having a net worth of Rs 500 crore or more the consent clause has been inserted only for acquisition by or having a turnover of Rs 1,000 crore or more or Rs 5 private companies and public–private partnership ventures crore of net profit of a three-year average, and the board (to the extent of 80 per cent and 60 per cent of landowners, of the company is liable to comply with the obligation. respectively), and there is no provision of the consent for The company is required to undertake four key actions government-owned infrastructure projects. The provision in this regard: a) to set up a CSR committee at the board for public hearing also does not exist in the Rajasthan level, b) to come up with a CSR policy declaring the Bill. The Bill also provides a timeline of two years for the works to be undertaken following Schedule VII, c) to payment of compensation. While Rajasthan Bill will go spend at least 2 per cent of its net profit average of last through the legislature soon, the legal difficulty will remain three years on CSR, and d) to report back to the board as the central law will override the state law in case of a legal and file a return to the Registrar of Companies to that conflict. Therefore, from a business perspective, the central effect, and provide explanations if these compliances law would have to be diluted and hence these pressures. have not occurred. There are a few grey areas in the Act in this regard as pointed out by industry advisors. First, it is not clear whether an explanation would suffice or is a penalty Box 2.3 Demands from industries and state governments involved in case of non-compliance. Second, the list of activities as defined in Schedule VII mentions broad 1. Lower the consent clause to 50 per cent of land of domains and is not a list of exhaustive activities, thereby landowners from the present 70 and 80 per cent. leaving space for subjective interpretation. Third, there 2. Remove the rehabilitation clause for privately driven land purchase deals. may be a reluctance to spend on CSR on the part of 3. Remove the retrospective clause. (According to the companies that are not making profit, but have a net present law, where land has been already acquired, but worth or turnover as specified in the Act. There was one compensation not given should be given in the new rate.) other contentious issue that was subsequently clarified. 4. Tamil Nadu, UP, and West Bengal governments want It is now understood that the clause of an independent that state government be empowered to determine what director in the CSR committee does not apply to private is public purpose in their state. limited companies. 5. Karnataka wants SIA to be done only for large industrial projects and not for all projects. There have been a number of representations to the 6. Kerala government wants consent clause before government from the companies falling under the preliminary notification to be removed. purview of the Section 135 as a result of which the Ministry of Corporate Affairs issued a helpful Source: Compiled by the authors from various newspaper reports. clarification notification on 18 June 2014. The content of the notification is worth mentioning here as it reflects

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the concerns of the industry, the main stakeholder in was rather hastily promulgated as an ordinance in this case. March 2014. This came as amendment to the SCs–STs Atrocities Prevention Act, 1989. • The topics mentioned in Schedule VII should be The SCs–STs Atrocities Prevention Act, 1989, came interpreted liberally; these are broad themes and not into being to protect members of SCs and STs from activities in itself. social and economic discrimination and physical abuse • CSR activities must be in a project or programme by any other person or community or organization. mode; one-off events or sponsorships cannot be These discriminations could be in the form of depriving counted as CSR. them of access, dispossessing them of their assets by • Expenses incurred in fulfilment of any other Act (for illegal or immoral means, social stigma, violence against example, labour laws, Land Acquisition Act) cannot the SCs–STs by higher castes, sexual misconduct with be treated as CSR. SC–ST women, and the like. • Foreign-holding companies can direct their CSR However, the Act of 1989 could not prevent such social expenditures through their Indian subsidiaries. evils nor could it reduce such crimes substantively. The • Contribution to a corpus of a Trust/Society/Section 8 complex legal remedial processes largely remained out of company can qualify for CSR expenditure if the said the reach of the SCs–STs. Several reports, for example, entity is created for CSR activity, and if the corpus is by the National Alliance for Strengthening SCs–STs created for activities falling under Schedule VII of the (Prevention of Atrocities) Act, 1989, reports of the Companies Act, 2013. National Commission of SCs–STs in 1996–7 and then Addressing these concerns emanate from much of the again in 2006–7, the recommendations of the National existing practices of the corporate sector. It may be noted Advisory Council (NAC)—all point to several legal and here that previous experience of corporate engagement institutional shortcomings that have prevented the Act with social welfare activities included welfare of becoming truly protective of the SCs–STs. The NAC, employees’ families in terms of education and healthcare, while giving its recommendations, noted the following donations to charities as a one-off engagement, one-off about the efficacy of the existing Act of 1989: financial support/sponsorship to educational, cultural, Despite the deterrence assured by the Act, atrocities against these or sports organizations, or a sustained engagement with groups continue unabated and legal justice remains out of reach for specific communities linked with the company’s business a majority of victims largely because of poor implementation of the as a supplier or consumers. None of these activities Act. Victims and witnesses confront hurdles at every stage of the legal process—from registration, investigation and charge sheeting, would qualify for CSR under the present law. This leaves to the trial stage. The conviction rates under the Act remain low.4 a large vacuum in terms of understanding what would now be considered as a CSR activity, how to formulate Key areas of concerns as expressed by the NAC were: CSR policy, and how to ensure that the money is well • Certain forms of atrocities, though well-documented, spent. This requires new skills to be built in the sector. are not covered by the Act. We are happy to note that a separate chapter on CSR is • Several offences under the Indian Penal Code are also part of this report that goes into details of many of these committed frequently against SCs and STs by non- questions and seeks answers from existing good practices. SCs and non-STs, on the ground that the victim was SC or ST. Such offences need to be brought into the SCs–STs (Prevention of Atrocities ambit of the Act. Amendment) Bill, 2013 • Public accountability provisions under the Act need to be outlined in greater detail and strengthened. This Bill intending to enlarge and tighten the provisions • Implementation of the Act suffers from the following of the Scheduled Castes and Scheduled Tribes (SCs–STs) problems, which need to be addressed: Atrocities Prevention Act, 1989, was introduced in • Procedural hurdles such as non-registration of cases Parliament in December 2013, and since the Parliament • Procedural delays in investigation, arrests and filing could not take it up for consideration, the same Bill charge-sheets, delays in trial, and low conviction rate

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• Procedural delays in providing relief and will briefly discuss the other two Bills, namely, the Mining rehabilitation to victims Amendment Bill and the Agricultural Biosecurity Bill. • Inadequate rates of compensation The Mining Amendment Bill Recognizing the concerns raised by various reports, the UPA government introduced an amendment Bill to this SOIL Report 2013 had a detailed discussion on the Mining Act in December 2013. As the national elections were Amendment Bill in the context of tribal livelihoods. The drawing nearer, it became clear that the Parliament might Amendment to the Mining Act of 1957 was introduced not have the time to discuss and pass the Bill before its in the Parliament in 2011 in the wake of the mining scam term expired. The government realized this, and decided that surfaced in several parts of the country. The intent to promulgate an ordinance that came into being in March was noble: to make mining licensing and operation more 5 2014. We may note here that the Bill and the amendments transparent and sustainable, taking into account the cover a whole range of issues impacting SCs–STs. There needs of tribal livelihoods. The Bill was referred to the are a few provisions in the ordinance that deserve attention standing committee of the Parliament in January 2012, from a livelihoods perspective. We have culled out such and the committee submitted its recommendations a provisions and shown in Box 2.4. The amendment also year and a half later in May 2013. The bill was again seeks a number of measures for quicker remedy through introduced in the Lok Sabha and has been waiting ever the tribunal and court system. since for consideration by the Lok Sabha for more than a As in many other cases, the laws are only as good as year now. At the time of writing of this report, the status their implementation in letter and spirit. Therefore, while of the Bill was the same as it was a year ago. a stronger law creates a stronger potential, it remains to The Bill had a few radical propositions from the be seen if this stronger law creates a substantive difference perspective of tribal livelihood. One is that the affected on the ground for the SCs–STs. persons shall receive a non-transferable share in the mining company; the second is that the affected persons Pending Bills will receive an annual compensation, which the lease holders shall pay into the proposed District Mining From a livelihoods perspective, at least two other Bills Fund. The flip side of it though is that mining leases can could not complete their journey to becoming Acts. We be given to non-tribals. This is hugely controversial as there are a number of Supreme Court judgements against such provisions. Further, there is no provision in the Companies Act for non-transferable shares, and the bill Box 2.4 Provisions related to livelihoods in the SC–ST Ordinance 2014 is weak in that respect as well. However, the silence of the Parliament on such an issue that affects the livelihoods of 1. Stronger clause on wrongful occupation and or the most excluded such as the tribals is baffling cultivation of SC–ST land by a non-SC–ST person. 2. Stronger clause on wrongful dispossession of an SC–ST Agricultural Biosecurity Bill person from his land including forest land, water body, irrigation facility, and also from his crops. As globalization deepens, one key economic activity 3. Clearer clause on compelling an SC–ST person to that gets widely affected is agriculture. Plant and seed begging or other forms of bonded labour. 4. Stronger and clearer clause on preventing an SC–ST person varieties, pest control, fertilizer production and use, and from using any kind of common property resources. disease surveillance have become global phenomena. 5. A newly introduced clause on economic boycott against Trade in crops, fruits, vegetables, flowers, and animals has SC–ST. become global too. Governance of agriculture now needs 6. A newly introduced clause on compelling any SC–ST to a new organizational arrangement in which trade, disease remove human or animal carcass or do manual scavenging. surveillance and control, and protection of plant variety Source: Compiled by author from SC–ST ordinance 2014. and diversity assumes national and global importance. The Agricultural Biosecurity Bill was conceived to do that.

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The Bill proposes formation of an Agricultural Bio maintenance, services, and other parts of the value chain. Security Authority of India. It is going to be mandated Apprenticeship is an important way to help a person graduate to regulate import and export of plants and animals as from being an unskilled to a semi-skilled or a skilled worker. well as their interstate trade. The same authority will also For a young aspirant who is educated in any branch of establish a mechanism of pests and disease surveillance engineering or management or other technical subjects in a over the country. The authority will have the power to degree or diploma college, an apprenticeship is the beginning declare an area a ‘controlled area’ if it is convinced that of his/her lifelong livelihood. This is why the amendment in the area is infested with a pest. And the authority will the Apprenticeship Act warrants a discussion in this chapter. have the power to recommend the declaration of a ‘pest For the record, it may be noted that the government acts emergency’ to the central government. as a regulatory and promotional body in this regard. The The Bill was introduced in Parliament in March 2013, existing Apprentice Act, 1961, is the legal instrument for and thereafter referred to the Standing Committee. The government’s regulatory and promotional action. Standing Committee, which has already submitted The new Act has amended a number of sections in the its report, has recommended more representation of existing Act, and these have far-reaching consequences. the state governments in the national body. It has also Box 2.5 captures the changes in the Act. The amendments recommended deletion of the clause of reimbursement of clearly point towards more freedom for the employers and costs of the national body by the state governments for limit or reduce the control of government bureaucracy. the services rendered by the national body. The Bill has More importantly, the amendments also expand the to be reintroduced to the Lok Sabha, which is awaited. scope of engaging an apprentice by enlarging the list of What difference does this Bill make to the livelihoods of trades and other clauses. This is expected to enlarge the the farmers? As we see it, the farmers will eventually have to deal with another bureaucracy in their production and exchange of crops. With globalization, the value chain in Box 2.5 Amendments to the Apprentice Act, 1961 agriculture also has turned national and global in many cases. Seeds, pesticides, herbicides, fertilizers, plants, animals, and 1. Change in definition of appropriate government to include any agency operating in four states under crops travel long distances within and beyond the country regulation of the central government to reach the users. With that travel the risks for the farmers 2. Definitions of designated trade, graduate, or technician as well. The new authority is supposed to make it safer for apprentice, trade apprentice, industry, and worker the farmers and the users as well, but the farmers would broadened to include almost any kind of industry, trade, need exposure and training to handle this bureaucracy. and even persons from non-engineering backgrounds. Also introduced a new ‘optional trade’. 3. The minimum age of an apprentice earlier was 14; New Policy Push now the amendment adds that in hazardous trades, the apprentice cannot be less than 18 years old. National Apprentice Amendment Act, 2014 4. The number of apprentices now to be exclusively decided by the central government; no role of the As of September 2014, this is the only legal instrument on Central Apprentice Council; no ratio of trade apprentice livelihoods that the new government has pushed through. to workers to be determined any more. The Apprentice Amendment Bill was introduced in the 5. The employers would now be solely deciding on the practical training of the apprentice once he/she is taken in; Lok Sabha on 7 August 2014, and it was passed on 14 approval of the Apprentice Advisor is no longer necessary. August 2014. Despite the opposition’s demand that the 6. The amendment also clearly gives the decision of hours Bill be sent to a parliamentary standing committee for of work and number of leaves to the employers. review, the majoritarian action by the treasury bench, with 7. The amendment removes the provision of imprisonment the support from the Speaker of the Lok Sabha, ensured to employers in case of certain offences; only limits to fine. that it was passed within seven days of its introduction. Source: Compiled by the authors from the Apprentice Apprentices are a part of the formal industrial sector, Amendment Act, 2014. which engages trade apprentices to assist in production,

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pool of apprentices substantially, as they can be engaged The GM seeds are new generation seeds that are of in larger number of sectors and trades. high productivity, strong pest resistivity, and require less Many of these changes are well-intended in terms of fertilizer inputs. Prima facie, these qualities make the creating a larger pool of apprentices, widening the scope to seeds attractive to the farmers. There are, however, serious engage them in a larger number of trades, greater employer concerns including: freedom to use the apprentices, and less bureaucratic • the unknown and unpredictable consequences of control. However, there are two specific areas of concern. genetic modification of seeds; Given the poor record of Indian industries in terms of • the loss of the huge diversity of germplasm that have maintaining labour standards, certain clauses can easily evolved through natural selection processes and that be misused by the employer, which can go against the are suitable for relevant agro-climatic zones and soil apprentice. In particular, it relates to the clause of hours of conditions; and work and leaves to be decided solely by the employer. This • the transfer of control of seed supply entirely to the seed may result in the use of an apprentice in exactly the same companies from the farmer and the state; GM seeds way as a regular worker, while paying the person much less cannot be reproduced at home at all; farmers have to under the ruse that he/she is only an apprentice. buy these seeds from the big companies every season. The second is the definition of ‘designated trade’ and ‘optional trade’ created under this amendment. In Use of GM seeds was introduced in India via Bt particular, it is ‘optional trade’ that can be decided by the cotton, unannounced before any policy on GM seeds employer without recourse to a higher review and public was formulated. The Government of India as well as notification. Both can be used to have the apprentices the inventor of the Bt cotton seeds, Monsanto, were work at the main shop floor and in many other major surprised at this development. The journalists and social operations. This would signal a way of reducing labour movements brought this into the public domain and cost for the company by having a trained apprentice initiated debates on the challenges mentioned earlier. But do the same work of a skilled experienced and usually the use of Bt cotton continued unabated. a permanent worker while paying the person only a The debate took a national character in the case of Bt fraction of the remuneration. The safeguard against such brinjal. This time, brinjal being a food crop, the questions unethical labour practices are still weak in India. We will of safety became supreme and the voice of people became only know of these malpractices in coming days. louder and sharper. The nature of the debate also rose to a new level of national engagement involving grass-roots Trial of GM Seeds activists, scientists, non-governmental organizations (NGOs), farmers, and the like. Not only were questions While some policies go through the parliamentary process, raised on the issues of plant diversity, risks in the food others simply come out of an administrative order. The chain, control of seeds by multinationals, etc., but Genetic Engineering Approval Committee’s (GEAC’s) also, more fundamentally, on whether the farmers and approval to commence trial of GM seeds is a case in point. ordinary citizens would always be passive recipients Before we deal with the issue, a little about why we think of expert-driven technologies, or would they ever be this forms part of the livelihoods policy discourse. able to exercise the right to engage in the enterprise of Seeds are one of the key inputs in agriculture– scientific and technological change with their wisdom, horticulture. Historically, seeds were produced in peasant agency, and choice. Thanks to a sympathetic Minister, homes through home-based technical processes. As modern Jairam Ramesh, the discourse truly became national with varieties of seeds appeared through scientific research to wide consultations in many state capitals, which saw increase productivity, control of seed production and trade very rich debates on the issue. Finally, a moratorium was slowly shifted hands from the peasants to seed companies. announced on the trial of Bt brinjal. However, for non-GM seeds, farmers have found ways to On 18 July 2014, the GEAC gave approval to the trial of reproduce the seeds at home plots, since these seeds were rice, mustard, brinjal, chickpeas, and cotton. It also allowed of the naturally reproducing type. the import of GM-based soya oil. This has again revived

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the debate not only about the three key challenges but also Table 2.3 The Rangarajan Committee poverty line about the nature and process of policymaking. Questions Expense type Expense per head per month are being raised on stakeholder participation, objectivity (in Rs) of the GEAC, role of public debate behind policymaking, Rural areas Urban areas demystification of technical knowledge as integral to public Food: energy + protein + fat 554 656 6 policy, and the like. We will return to the process and Basic non-food expense 141 407 nature of policymaking at the end of this chapter. All other non-food expense 277 344 Total 972 1407 New Poverty Line

Policy discussion on livelihoods typically centres on those Second, the committee added protein and fat requirement impacting the livelihoods of the poor. Although the into the poverty line norm and computed 48 gm of discourse on the poor and poverty has, over the years, protein and 28 gm of fat for rural areas and 50 gm of moved away from income poverty to the multidimensional protein and 26 gm of fat in urban areas as the acceptable nature of deprivations, in India, official policies and policy- norm. To arrive at the monthly expenditure, a person has related thought processes continue to focus on the number to make to get this amount of energy, protein, and fat in a of poor who do not have a threshold income to meet certain month, the committee used 68th Round data of NSS and expenditures. Since 1979, when Y.K. Alagh first introduced computed Rs 554 per person per month and Rs 656 per the idea of a poverty line, the official policy has most often month per person in rural and urban areas, respectively, used the poverty line as its benchmark to determine the as the threshold expenditure to be non-poor. Third, the state engagement with livelihoods of the poor. committee considered clothes, rent, conveyance, and The concept of poverty line meanwhile has gone education as the norm for essential non-food expenses for through a few critical changes, the most critical of which being concerned non-poor. This works out to be Rs 141 per was the shift from a per capita calorie norm based poverty head per month in rural areas and Rs 407 per head per line to consumer expenditure based poverty line. And month for urban areas. The committee also considered all then, in 2009, the Tendulkar Committee made another other non-food expenses. That worked out to be Rs 277 significant departure by anchoring rural and urban poverty and Rs 344 per head per month for rural and urban areas, lines based on the figures of urban poverty. In September respectively. Thus, for a person to be just at the poverty 2011, the Supreme Court in dealing with a public interest line he/she should be earning at least Rs 972 per month in litigation on the public distribution system took a strong rural areas and Rs 1407 per month in urban areas. view of the central government’s sworn-in affidavit claiming On the basis of these threshold values, the committee only 27 per cent are poor; it asked the government to used a modified mixed recall method to determine that clarify how it was defining the poor, when nearly 45 per 30.9 per cent of the rural population and 26.4 per cent cent of population suffers from malnutrition. That led to of urban population were poor in 2011–12. This means formation of a new Committee headed by C. Rangarajan, 260.5 million and 102.5 million persons were poor in to examine the methodology of determining poor in this rural and urban India, respectively, in 2011–12. country. This committee has submitted its report in July The committee therefore concludes that, ‘The poverty 2014 which is now under public scrutiny. ratio has declined from 39.6 per cent in 2009–10 to The Rangarajan Committee made a few changes in 30.9 per cent in 2011–12 in rural India and from 35.1 per the measurement framework (Table 2.3). First, it did not cent to 26.4 per cent in urban India. The decline was thus discard the calorie norm based line entirely, but it used a uniform 8.7 percentage points over the two years. The the latest computation by the Indian Council of Medical all-India poverty ratio fell from 38.2 per cent to 29.5 per Research (ICMR) to arrive at the norms of 2,155 Kcal cent. Totally, 91.6 million individuals were lifted out of per person per day for rural areas and 2090 Kcal per poverty line during this period.’7 person per day for urban areas as the minimum energy From the livelihoods perspective, this line indicates how intake for an average rural and urban person to stay fit. many people will prospectively be declared poor in a state,

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resulting in the centre’s and state’s welfare benefits reaching the NSS or the expert groups. Also, the survey is done by to them through various programmes. These benefits are non-professionals. As a result, the below poverty line (BPL) usually not adequate to lift these people out of poverty line, list that appears out of the survey is usually full of inclusion but are like a life support system to the poor. The committee and exclusion errors, often of very large proportions. This has made two recommendations with regard to the use of this lends the entire exercise futile from the perspective of the poverty line. It has recommended a state-centric poverty line real poor. It is unfortunate that Indian scholarship does not to reflect interstate variations, and it has also recommended engage in discussing this aspect of the poverty line. delinking state benefits to the poor from this line and the use of this line only for the purposes of budgetary allocation of National Youth Policy central grants to states. The second is unlikely to happen as the states do not have any other alternative credible means The youth, typically understood as persons of 15–29 years to determine the beneficiaries of state benefits, and it may be of age, form 27.5 per cent of the Indian population. By its expected that the states would continue using such a line to own admission, the Government of India annually spends extend some of its benefits. more than Rs 90,000 crore on programmes for the youth Jean Drèze and Angus Deaton have critiqued the report of this country. The bulk of this spending is incurred in on several counts. First, they have questioned why ICMR providing high school, college, and university education; reduced the calorie norms for the same set of people doing the rest goes into sports, cultural events, and various skill- the same kind of work, from the earlier 2,400 Kcal and building programmes. It is a fact that these expenditures 2,100 Kcal per person per day, and why the Committee are not made within a comprehensive national youth adopted new norms without any explanation. Drèze policy. Over and above the central government, the state and Deaton have also asked why the expert group has governments spend significant resources on youth every considered a particular fractile of the NSS consumption year. About 10–12 central ministries and their counterparts expenditure that meets the norm for food and some non- in the states are involved in these programmes related food items, while for another set of non-food items another to a wide range of activities such as degree education, fractile that the expert group thinks meets the norm has vocational education, skill development, apprenticeship, been selected. The expert group has not explained this sports, travel–tourism, culture, and entrepreneurship. A either. Drèze and Deaton have further raised doubts on national policy on youth which provides clarity, focus, and the claim of the expert group that urban poverty is much direction, therefore, was the need of the hour. The NYP larger than rural, a claim not usually supported by other 2014 is a welcome step in this context. studies. Finally, they called for abandoning the idea of Since most of the initiatives targeting the youth are accurate measurement of poverty line as a failed idea. That meant to prepare them for dignified and productive apart, their most critical comment is: livelihoods, the NYP 2014 warrants a discussion in this The poverty debate has always remained too technical and foggy. It chapter. It has set five broad objectives: does not lend itself to serious public debate and in particular in a • Create a productive workforce that can make sustainable debate where the poor can participate. In our view this is one key contribution to India’s economic development issue in policy making which can be expressed as a question: do the people impacted by a policy have a chance in participating in • Develop a strong and healthy generation equipped to the conversation leading to the policy?8 take on future challenges • Instil social values and promote community service to However, one aspect that has never been considered as build national ownership part of the discussion is that of determining who is poor. • Facilitate participation and civic engagement at levels While the percentages determined by various expert groups of governance tell us how many are poor, it does not tell us how to search • Support youth at risk and create equitable opportunity and find the poor. Usually, that is done by state governments for all disadvantaged and marginalized youth using questionnaire formats and surveys conducted by school teachers/Anganwadi workers and/or others. These surveys The policy then goes on to focus on 11 thematic areas do not follow the same principles and formats followed by of intervention to achieve these objectives. These areas are

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education, employment and skill development, health, entrepreneurship, sports, promotion of social values, Box 2.7 Lagging monitoring indicators of NYP 2014 community engagement, participation in politics and Obj-1: Creating a productive workforce governance, inclusion, and social justice. In each of these • Youth unemployment rate thematic priority areas, the policy locates ‘existing status’ of • Completion rate in higher education the interventions and adds what it calls ‘future imperatives’. Obj-2: Creating a healthy generation A couple of examples will illustrate the point. • Maternal mortality rate The second priority area mentioned in the policy • Number of gold medals per capita in Commonwealth Games (CWG) document refers to employment and skill development. Obj-3: Instil Social Values and promote community service The relevant section in the policy document captures all • Number of delinquent youths as per IPC, SLL the different programmes that the Government of India Obj-4: Promote civic engagement implements in capacity-building and mentions some of the • Elected PRI representatives under 35 state government programmes as well, including the recent • Youth voter turnout large-scale efforts in skill development and the government’s Obj-5: Inclusion and social justice own efforts in guaranteeing employment through schemes • Number of unemployed youth from different social such as that under the National Rural Employment groups Guarantee Act (NREGA). This is followed by the section Source: Compiled by the authors from NYP 2014. ‘Future Imperatives’ that has three action points: a) Targeted youth outreach and awareness programmes b) Building linkages among system and stakeholders c) Defining roles implementation, and the lagging indicators are meant to of governments and other stakeholders. observe longer-term impact. Similarly, the sixth priority area is related to promoting Does this policy make sense? It apparently does, but social values in which the document captures the existing on a closer look, several comments can be made. programmes of various ministries, and then goes on • The structure of the policy the identify ‘future imperatives’ as: a) formalizing value • It does not analyse how the resources are spent. education, b) strengthening engagement programmes • What impact has it generated so far? on youth, and c) supporting the work of the NGOs in • What are the main lacunae in implementation? promoting social values and harmony. • What synergies exist among the existing programmes? All the 11 priority areas are discussed in the NYP • What are the challenges? 2014 in this manner, and at the end, it creates a set of • Whether the existing programmes are indeed in indicators which are given in Boxes 2.6 and 2.7. It may tune with the intent of the policy. be mentioned that the NYP has defined two kinds of • Further, while the policy identifies broad objectives, it indicators, ‘leading’ and ‘lagging’. Leading indicators are does not define quantifiable or measurable indicators those indicators that can be monitored for tracking policy to evaluate the progress on any of the objectives. • In fact, even the period for which this policy will be in force is not specified. Box 2.6 Leading monitoring Indicators of NYP 2014 • In addition, though ‘future imperatives’ have been outlined, many of these strategies are not 1. Number of states that create a youth policy the prerogatives of the Ministry of Youth Affairs, 2. Number of times NYP 2014 is referred to in state policy documents and reports the author of the policy document; there are no 3. Number of times NYP is referred to in stakeholders suggestions on how other ministries will be expected documents of media, civil society, and private sector to pursue strategies set out by the Youth Ministry. 4. Number of initiatives taken up to close the gap • The policy does not comment on the financial resources mentioned in NYP 2014 required in its implementation. It starts by saying that the Source: Compiled by the authors from NYP 2014. Government of India spends more than Rs 90,000 crore. Does it imply that resources are not a matter of concern?

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Reading through the policy document, one gets the hiring more labour. In industries where labour cost is a impression that the intent of the policy is to provide a relatively smaller proportion of the cost of output, this thematic structure to all the multifaceted programmes of measure will be welcomed by the industry. As such, there the Government of India and the states, to capture them is a convention in many industries to have the labourers under a few umbrella goals thus providing more clarity do overtime almost on a regular compulsory basis. The and focus to the thought processes of the bureaucracy measure would certainly boost the employers of such that formulates and runs these programmes. And in industries. doing so, it accepts what is presently being done by The third is a pro-worker measure. Presently, employees various ministries, rather than critically analysing them. are not entitled to leave except a limited number of casual And without critical analysis, the document looks self- leaves, until the end of first year of employment. This is congratulatory and full of pious wishes. certainly not desirable and the cabinet decision would be welcomed by the organized labour community. Policy in the Making—Change in Labour Laws The proposal to relax the norm that disallows women from being employed on night shifts in certain While some policies are made by the government industries has been hotly debated. With the increased without recourse to parliamentary approval, there are number of women in the organized labour force and many others for which the government has to come their presence in many new industries, it has been felt to the Parliament with a proposal usually in the form in many quarters of the industry that to mandate that of a new Bill or an amendment to an existing law. women cannot be asked to do night shifts in certain One such endeavour in the making has an important industries is a needlessly crippling and limiting clause bearing on labour laws in the organized sector. With the which should be done away with. This comes from the Cabinet nod received on 30 July 2014, the government pressures of globalization and technological advances, proposes to change some aspects of the labour laws as where monetized ‘work’ in a society is no longer confined enshrined in the Factories Act, 1948, and Labour Laws to a limited number of hours during the day (leaving (Exemptions) Act, 1988.9 The proposals approved by other hours for equally important non-monetized the union cabinet are as follows: works), except certain sectors where the societal value of the ‘work’ demand 24 × 7 presence of workers. The logic • Increase in provision for overtime of 50 hours in a of globalization is deliberately pushing non-monetized quarter to 100 hours in a quarter work in a society to its minimum, so that more labour • Increase in provision of overtime of 75 hours in a power is available in the labour market. Whereas the quarter to 125 hours in a quarter for public utilities societal goal should be to reduce all work in the night • Decrease in provisions of 240 hours of work before shift except where it is absolutely needed for greater being eligible for leave to 90 hours societal good, there is increasing pressure to have men • Relaxation of norm of women’s work presently and now even women to work in as many sectors of the restricted from 6 pm to 6 am for certain industry economy as globalization requires. segments • Removal of prosecution clause that implies that the employer may be prosecuted for petty offences like not Concluding Remarks having a toilet on the premises The union government will be about six months old • For small-scale industries the government will pay when this report goes to press. Six months is certainly 50 per cent of the apprentice’s salary not enough to take a firm call on the policy directions • Exemption from furnishing annual return for of the new government, even though certain trends can companies that employ less than 40 employees as be discerned from what is already on the plate for the opposed to 25 employees. country. Based on what has been reported and discussed, The first two measures will help the industry to use we will try to make sense of what the government may more overtime to achieve the desired output instead of be thinking.

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First, the annual budget did not really indicate a The previous year also saw hasty efforts by the previous dramatic change in policy direction; it, in fact, reinforced government to pass some of the pending resolutions the continuity of the existing programmes meant for clearly in order to claim credit in the context of the livelihoods of the poor. The allocations for the existing general election. The Manual Scavengers Act, the Street programmes have remained the same, and the new Vendors Act, the RFCTLARR Act, the Companies’ Act, initiatives declared are purely on an ad hoc and token 2013, and the SC–ST Ordinance are cases in point. That basis. This may be due to the fact that the new government it did not show up in election results is understandable. had very little time to prepare the budget, as also the Legislations do not help win elections unless they fact that it was presented in the middle of the financial unfold on the ground for the benefit of the intended. year, making it rather difficult for the government to Nevertheless, these legislations were long overdue and initiate any substantive change. One major change being therefore were welcome, though the ‘last minute haste’ in discussed is on the MNREGA, which we will take up pushing through these policies was deplorable. It may be later in this chapter. noted that the two exceptions were the Mining Bill and Moving beyond the budget, however, a major policy Agricultural Biosecurity Bill which would have to wait shift that became apparent within the first month of for the next session of Parliament. the new regime was in the form of approvals to trials on In light of the overall policymaking experience over GM seeds; this demonstrated a clear intent to transform the last few years, a few general comments can be made. agriculture and food policy. In particular, the permission First, policymaking over the last few years has become for Bt brinjal trials, lifting the embargo imposed as much more of a consultative process compared to the a result of the huge country-wide protests against its past. Technology and communications have certainly introduction marks a clear move towards what can be played their part in the form of interactive websites, called corporatizing Indian agriculture. Further, the web-based discussion forums, electronic conferencing, policy shift favouring businesses and industries is seen in and electronic campaigns. Increasingly, civil society the amendment to the Apprentice Act, 2014, and cabinet organizations, issue-based networks, grass-roots social decision on labour reform. The measures being adopted movements outside the control of political parties, in the Apprentice Act and labour reforms are clearly media, and public intellectuals have become major biased in favour of freeing the industry from some of the influencers of policymaking. This has indeed widened labour restrictions that evolved during the ‘socialist’ past. the democratic space for dialogue and debate; widened One may expect more legislation on these lines in the citizen participation in policy discourse has thus coming years. lifted the policy discourse from techno-bureaucratic The discussion towards amending the RFCTLARR exercise. While this is a welcome development, the Act, particularly on demands from the industry and parliamentary process to make policies has become some state governments hungry to attract capital, longer and more cumbersome. To take one example, all also point to the same pro-industry policy thinking the different parliamentary standing committees have of the government. Notwithstanding the hugely taken more than a year to submit their reports. For a complex techno-bureaucratic character of the existing parliamentary term of five years, one year to review RFCTLARR legislation which is indeed difficult a draft legislation seems too long, given the available to implement, the present conversation is clearly parliamentary resources. Disruptions in Parliament also veering towards diluting the restrictive clauses that are took its toll for nearly four years, thus delaying most intended to protect the livelihoods of the potentially of the legislations. Further, a law is not implemented impacted families. The haste with which all these unless rules are framed and notified. The rule-making measures are being discussed and pushed for speaks often takes too long a time. of the government’s mind to show its political and There are, however, policies that have come into force economic dynamism. What we are beginning to see without due consultative process. Decontrol of sugar, here is a swinging pendulum from policy inertia to GEAC’s approval to initiate trial of GM seeds, and policy haste. determination of the poverty line are some examples of

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this. Many governmental missions and programmes too requirements, benefits, challenges, and impacts. The NYP are still developed and implemented in the old-fashioned 2014, as discussed earlier, is a classic case in point. The bureaucratic way. Every annual budget announces some socialization of the policy among all the stakeholders, new programmes with a few more added during the particularly among executers of the policy, is usually prime minister’s Independence Day speech; these too not part of policy planning. All these factors eventually come about without the pretence of participative process. influence policy implementation, usually in the negative This government has been no exception. For example, way. A few years or a decade down the road, some tinkering the Prime Minister in his Independence Day speech takes place in the policy, and the ‘show just goes on’. announced a number of programmes that do not have Time has come now to set some standards in Indian budgetary provisions. These programmes do not follow policymaking. These must include: from wider public discussions; at best, the discussions are limited to a set of ‘experts’ and bureaucrats. With respect to • Policy process: How should a policy be made? budgetary allocations, the policies/programmes decided in • Policy structure: What should go into a policy in terms a pure bureaucratic way continue to hold significant levels. of analysis, quantification, institutional requirements, Third, the emphasis on law making has assumed new costs and resource implications, and the like? significance. In addition to the politicians, bureaucrats, • Socialization and implementation plan: What should and lawyers, a new constituency has evolved over the the specific timelines be for meeting clearly enunciated years now that loves law making. This constituency can policy objectives? be called development activists or at least a section of • Clear policy monitoring and review structure: them. A large number of laws for the poor have come Normative standards would help in transparency, up in the last decade essentially from the efforts of participation, debate, and critical analysis in the public these development activists. Mahatma Gandhi National sphere, as well as improve the overall quality of policy Rural Employment Guarantee Act, 2005 (MNREGA); and its making in India. Right to Information Act, 2005 (RTI); Forest Rights Act, 2006 (FRA); Hindu Succession (Amendment) Act, 2005 (HSAA); Food Security Act, 2013 (FSA); REIMAGINING FLAGSHIP and Right to Education Act, 2009 (RTE) are a few LIVELIHOODS PROGRAMMES of them. A number of assumptions underlined these legislations—laws make governments accountable; Over the last few months, the aam aadmi (common existing institutions have the resources and readiness to man) of India has been buffeted by several bouts of deliver; the provisions of law will make them do it; and socio-economic and political upheaval with ten years that citizens become empowered if a law clearly favours of UPA governance coming to an end, the flux of the them. The actual experience on ground, however, shows interim general election period, and the advent of the that nearly all these assumptions are sadly misplaced. NDA at the centre. The large-scale flagship programmes MNREGA, RTI, FSA, RTE, and FRA are cases in of the Government of India, their budgetary point, where successive governments across tiers have allocations, as well as their outcomes have been widely had little to show in terms of additional accountability, debated throughout this period of change as also in the capacity, or intent to honour the law in letter and spirit. context of the attempts of the new government to rejig, Irrespective of how a policy is made—whether restructure, reboot, and revamp these programmes. through wider consultations or by technical experts This section studies two flagship programmes in this (economists in particular) or purely by bureaucrats of the context: the Mahatma Gandhi National Rural Employment ministry—the vocabulary of law, economics, and public Guarantee Programme under the MGNREGA, 2005, and administration still remains the forte of those few who are the National Rural Livelihoods Mission (Aajeevika). It engaged in the essentially techno-legal exercise of policy strives to reimagine, redesign, and recast the frameworks formulation. A policy document often pays scant attention on which these two programmes are based, so as to enable to the implications of the policy, its costs, institutional better outcomes and stronger impact.

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Since the last year has been marked by both the general MGNREGA Performance Report— legislative sluggishness before the elections with the Question of Legacy hyper-expectations from the newly elected government and the uncertainty prevailing in the first part of the The MGNREGA had a budget outlay of Rs 33,000 year, this section begins by examining the official data crore in 2013–14 as compared to Rs 29,387 crore a year presented in the Economic Survey 2014–15.10 before, although it was still less than Rs 35,841 crore in 2010–11. Ever since 2006 when it first started, the MGNREGA has come under all-round criticism though What the Economic Survey 2014−15 has its positive impact on livelihoods security became evident to Say about MGNREGA and NRLM fairly early with the guaranteed 100 days of employment TheEconomic Survey 2014−15 has strongly argued in favour to the poor. of an immediate revamp of prominent ongoing social- sector schemes including the National Rural Livelihoods MGNREGA: What It Has Got Right Mission (known as Aajeevika) launched in 2011 and the Mahatma Gandhi National Rural Employment Guarantee A joint research on the MGNREGA was conducted by the Programme enacted through an Act in Parliament in 2005 National Council for Applied Economic Research (NCAER), (MGNREGA). The report highlights the fact that despite New Delhi, and University Maryland, USA, comparing the huge outlays, social schemes often fail to translate fully socio-economic condition of about 7,000 rural households into desired outcomes both in terms of scale and quality in 2004–5 (before the Act) with their status in 2011–12, owing to poor delivery mechanisms. when the programme had been implemented in all districts. TheSurvey identifies various limitations and loopholes The report unequivocally states that the MGNREGA has in the MGNREGA, 2005, particularly the lack of indeed emerged as a unique attempt to provide a social safety participation of Panchayati Raj Institutions (PRIs) in net via massive public works programme.11 Titled the ‘India planning, execution, and monitoring of the programme Human Development Survey’, it examines the reach and although the Act is panchayat-centric and community- targeting of the programme, the experiences of households demand led. The survey also adds that ‘the awareness participating in the MGNREGS, and the broader changes level in the Gram Sabha/PRIs is very low, also resulting in the rural labour market during the period. The survey in lack of ownership, ill-conceived planning and shelf of reveals that regardless of the discrepancies reported between projects, and weak or even no social audit’. The survey the administrative statistics and actual usage, the programme further says that in some places only female workers were is remarkably well-targeted. The uptake in villages with low interested in availing of work as market wage for males is levels of infrastructure is higher (28 per cent) than in the much higher, resulting in only small works of lesser utility villages with better infrastructure (21 per cent). Households being undertaken instead of big and tangible projects. It from the marginalized communities (Dalits and adivasis) are reports that the need for community projects is becoming far more likely to participate in MGNREGS (36 per cent less important as probably such works have already and 30 per cent, respectively) than other households (20 per been completed or are on the brink of saturation or on cent). Women, too, have higher participation rates; although account of lack of common interest in public works. The only 29 per cent of all non-agricultural wage workers are Survey strongly advocates in favour of avoiding projects women, 44 per cent of all MGNREGS workers are women. with single or a small number of beneficiaries and the For those households that participate in MGNREGS, the use of MNREGA funds in a supply-driven mode. It income from MGNREGS forms about 14 per cent of their recommends a more development-oriented approach total income. with safeguards against fund misuse. The report also examines changes in the labour Regarding NRLM or Aajeevika, the Economic market as a consequence of the programme. Among Survey 2014−15 highlights the mismatch between the workers, non-farm work has grown substantially scope of activities and the massive investment made in while an exclusive agricultural focus has declined. infrastructure that the programme is supposed to create. The proportion of individuals who focus solely on

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agricultural activities has gone down from 51 per cent The CAG Report 2013 says ‘the poorest of the poor of men aged 15–59 years to 35 per cent and for women, were not fully able to exercise their rights under the the drop is from 84 per cent to 66 per cent. Much of MGNREGA’. MGNREGS has moved away from its the drop has been attributed to changes in agricultural core objectives of providing employment opportunities, wage work. While the report asserts that the programme creating sustainable livelihoods, and rural governance. has undeniably helped Dalits, adivasis, and women to Only 20 per cent of the funds allocated between find work, it also advocates the need for its substantial 2009−10 and 2011–12 had been released for Bihar, improvement. Maharashtra, and Uttar Pradesh, which account for While one will not deny the positive impact of the 46 per cent of the rural poor in India. It also says that MGNREGS on rural jobs and employment, the claim Rs 2,252 crore of inadmissible work was undertaken that the MGNREGS has led to a sharp increase in rural under the rechristened MGNREGS, including roads, wages is debatable. A study by the former Chairman ghats, and cattle platforms. The report finds that Rs 4,070 of the Commission for Agricultural Costs and Prices crore of work was incomplete, while Rs 2,374.86 crore (CACP), Ashok Gulati, showed that real farm wages extra was released by the Ministry of Rural Development rose almost 6.8 per cent per annum from 2006−7, but to six states by an error in calculation. Official data the impact of the growth of the GDP, agriculture, and shows that average employment under the scheme construction was almost four to six times higher than per household has dropped to a three-year low of just that of the MGNREGS. Figures show 2008−9 and 41 days in 2012–13. 2009−10 were perhaps the best years for the scheme, In reply to a question raised in Parliament, the Union when employment and incomes surged. Its fillip to State Minister for Rural Development has reported financial inclusion is also considerable. In 2011–12, that as of end-June 2014, 3,641 complaints have been almost 78 per cent of MGNREGS card holders reported received regarding irregularities in NREGS and about having savings accounts. half have been addressed. The government has reportedly taken several bold steps in strengthening the monitoring and review systems, introduction of e-muster rolls, MGNREGA under Fire electronic fund management system, and appointment of Notwithstanding interstate variations in the operational Ombudsman at the district level by the state governments minutiae and implementation success of the MGNREGA, in order to check the irregularities. several studies have made scathing attacks on the programme not being able to address the needs of the Renewed Approach to MGNREGA poorest of the poor which was ostensibly its primary under the New Government target group. This corroborates with the ‘People’s Report Card’ prepared by Wada Na Todo Abhiyan, a coalition There was a wide perception that the new NDA government of 4,000 rights-based groups, that advocates for greater would scrap the MGNREGS, but in the 2014 budget, the political will to make the required financial allocations for strategies on its continuity, albeit remodelled, have been flagship schemes in the area of food security, healthcare, made clear. The budget allocates almost the same amount and education. Released in February 2013, the report as last year (Rs 33,364 crore) with express commitment reviewed the implementation of flagship schemes in to continue with the scheme despite suggestions from major states and published some rather disturbing both inside and outside the party to scrap it. In his budget findings. In some panchayats in Tamil Nadu, it was speech, the Union Finance Minister said, ‘The government found that the actual wages offered for work under is committed to providing wage and self-employment MGNREGA were lower than the state’s prescribed opportunities in rural areas’. However, he also said that wages. There were instances where job card holders were wage employment would be provided under MGNREGA being made to sign on cheques in Karnataka and Rs 100 through works that are more productive, asset-creating, was handed over to each card holder without any work and substantially linked to agriculture and allied activities. being assigned to them. The continuance of the programme has been echoed by

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the Minister of Rural Development on completion of 100 2. Targeted approach: Contrary to the current universal days of the government. approach of MGNREGS which covers all blocks In view of the shortcomings in its design, nature without differentiating between blocks or states of assistance, delay in payment of wages, fictitious on poverty parameters, the renewed thrust is on a management information system (MIS), fabrication of ‘targeted MGNREGS’ which essentially means that job cards, corrupt practices, and subordination of the asset the government will identify and zero in on 2,500 creation/afforestation objective in choice of earthwork blocks characterized by high levels of economic (despite its strong connect with environmental sustainability distress. However, in November beginning, the new and livelihoods generation), the arguments in favour of rural development minister has announced that the remodelling the NREGS are compelling. Among the many job guarantee scheme had touched the rural poor like steps being taken in this direction, in the first week of no scheme before and it would continue undiluted in September 2014, an order was passed mandating that 50 per terms of coverage. cent of all MGNREGS works taken up at the district level 3. Fund for agriculture-related infrastructure: The be towards creating assets for water conservation so as to remodelled approach lays emphasis on building more prioritize mitigation of drought and drought-like situations. agri-related infrastructure like irrigation-linked dams, The centre expects to focus more closely on the 2,500 check dams, canals that bring water to drier areas, backward blocks identified by the Planning Commission building main arterial roads, and planting trees along in the execution of MGNREGA. In addition, there is an such roads. instruction to reverse the earlier decisions taken by the 4. Quality of work: The Ministry of Rural Development UPA government in 2011 which allowed states to seek has recently written to all states placing a special MGNREGS allocated funds for construction of Individual emphasis on quality of assets in terms of their design, Household Latrines (IHH) under the guidelines of Nirmal utility, and durability. In order to create durable Bharat Abhiyan. assets, the Rural Development Ministry wants the The decision to create works for water conservation convergence of MGNREGS with the schemes of other through MGNREGS has been debated on the ground that departments. It has also suggested maintenance of this takes the decision on nature of the works away from assets, evaluation, and impact study by a third-party the gram sabha, which is against the spirit of the Act. Focus agency to make it leakage free. on only backward blocks has been criticized for limiting 5. Speeding up wage payment: The Ministry of Rural scope. Ideally, in a drought-like situation, it would have Development aims to create a cadre of barefoot been better to broaden the scope of activities by increasing engineers to boost the effectiveness of MGNREGS the fund allocation for addressing the needs. by helping to speed up wage payments. This measure Some recent steps taken towards recasting MGNREGA aims at overcoming the perpetual problem of delayed in a new form include the following: wage payment. 6. Reversal of the wage−material ratio: The centre has 1. Defining eligibility under MGNREGS: There is big recently ordered the reversal of the wage–material move towards sharply defining the eligibility for ratio from the existing 60:40 to 41:59. It is argued work under MGNREGS which targets marginalized that works like check dam construction, desilting of communities, nomadic communities, scheduled and traditional water bodies, and minor irrigation tanks unscheduled tribes, BPL families, women-headed and canals require a combination of wage labour and families, the families headed by disabled persons, machinery. The final decision to change the ratio has and those who have got their dwelling through the been left to the discretion of the states. Indira Awas Yojana. The panchayats are expected to 7. Linking with other schemes of the Ministry of Rural perform a higher role of certifying those eligible and Development: In a significant move, the Union encouraging anyone in economic distress outside Government has recently decided to give Rs 12,000 per of the eligibility criteria to apply for work under household to the poor to build their homes under the MGNREGS. IAY. They can provide their own labour to build homes

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and get paid under the MGNREGS. This is expected NRLM: Where Does It Stand? to have a greater convergent impact in building about 25 lakh households and in generating demand for Conceptualized and designed to bring a paradigm shift work under MGNREGS. in the approach towards community empowerment, drawing lessons from different ongoing programmes of the Government of India and the states and civil There have been several new developments at the state society organizations, the National Rural Livelihood level as well. As a bold step, in July 2014, the central Mission (NRLM) as a creation of UPA II was government set up a number of indicators against which the launched, transitioning from the Swarnajayanti Gram performance of state-level MGNERGA implementation Swarojgar Yojana (SGSY) coterminous with the starting from the panchayat will be measured. The states are beginning of the 12th Five Year Plan to implement now required to report on performance indicators which the new strategy of poverty alleviation woven around include the rate of work completion, percentage of wage community-based institutions. The NRLM has been paid within 15 days, percentage person days generated, tackling many teething issues since it was launched and percentage of households completing 100 days of in June 2011. The mission’s primary objective is to work. This set of indicators aims to enable states to analyse reduce poverty by promoting diversified and gainful their relative performance and take corrective measures to self-employment and wage employment opportunities improve implementation and in keeping close tab on the for sustainable increase in incomes. Designed to states down to the panchayat. The centre has also asked the function in conjunction with MGNREGS, NRLM states to use ICT-based solutions like IVRS, call centres, and primarily focuses on creating self-employment and internet to capture the demand for work across the country. wage/job employment opportunities for the rural All these are signs of a big makeover to bring infrastructure- poor enabling them to cross the threshold of poverty led growth with transparency and public accountability. and become productive agents. The NRLM provides Recently, the Rajasthan Chief Minister wrote a letter a combination of financial resources and technical to the Union Rural Development Minister suggesting assistance to states for them to take the comprehensive that the MGNREGA be converted into a scheme. livelihoods approach encompassing four inter-related Political parties and civil society organizations alike tasks, namely: have registered strong protests against any dilution of the MGNREGA which is considered as the world’s • Mobilizing all rural, poor households into effective largest social security programme. It is argued that if self-help groups (SHGs) and their federations the scheme is not backed by an Act, the state cannot be • Enhancing access of the rural poor to credit and other held culpable in the eyes of the law for not being able financial, technical, and marketing services to provide the 100 days of work that the Act mandates. • Building capacities and skills of the poor for gainful The year 2014−15 is expected to be a watershed year and sustainable livelihoods for MGNREGS as many changes are in the offing. One • Improving the delivery of social and economic support of the latest initiatives of the Rural Development Ministry services to the poor is to digitally monitor the durable assets built under the government’s social sector programmes. The buzz is Photo‘ Kheench-Mantralaya Bhej’ (click a picture and send it to the NRLM: What Seems to Be Progressing Well ministry) to geotag photographs of the assets (to begin with The agenda notes of the recent NRLM Performance IAY) and post them on the ministry’s website to provide Review Committee (PRC) meeting held on 5 June 2014 the evidence of the schemes which include MGNREGS. provide ample information on how the NRLM has The idea is to crack the whip if progress is tardy, given the transitioned towards its goals from the SGSY in the last huge investment being made the government. Having three years across various states. done well in pushing Aadhaar-based cash transfers for schemes to curb leakages, this kind of digital solution aims • Till the beginning of June 2014, 27 states (barring at facilitating timely implementation. Goa) have transitioned to NRLM and their Annual

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Action Plans for FY 2014–15 have been approved by that block can be supported by internal CRPs the Rural Development Ministry. from the resource blocks. About 400 blocks are • States, particularly those come under the World Bank categorized as intensive. Existing SHGs are being supported National Rural Livelihoods Programme strengthened and provided access to financial (NRLP), have made significant progress in terms of assistance from banks under the non-intensive setting up implementation architecture. block strategy. • While most of the states have completed state-level • Partnership blocks: Partnership blocks strategy recruitments, there are major gaps in recruitment at aims to build either ‘no-cost based’ or ‘cost-based’ the field-team level. As of March 2014, only 62 per partnerships with NGOs and community-based cent of the approved positions were filled. organizations (CBOs) that have done significant • Social mobilization and institution-building are much mobilization. Some SRLMs have signed slower processes at the state level with interplay of partnership MOUs under this arrangement, for many factors at the state level. It is being taken up instance, the partnership between Jharkhand through a threefold strategy: SRLM and PRADAN for the implementation • Resource blocks: This strategy aims to generate of NRLM in 14 blocks and that between the enough social capital in one block (the resource Maharashtra SRLM and the IFAD-funded Mahila block) for scaling up project activities in other Arthik Vikas Mahamandal project. Partnerships are blocks. Each State Rural Livelihood Mission being forged in Odisha, Uttar Pradesh, Karnataka, (SRLM) is expected to implement this strategy and Gujarat. in at least 5 per cent of the total blocks in each state. It is envisaged that each resource block The new government has allocated nearly the same will help scale up social mobilization in 20 new amount of money to the mission as its predecessor did blocks in a phased manner. As of June 2014, last year. The target of each of the states is articulated 10 states are implementing this strategy and 13 through the Annual Action Plan (AAP). As per the plan states (Chhattisgarh, Maharashtra, Jharkhand, of 2013−14, it is reported that all most all the states Madhya Pradesh, Rajasthan, Haryana, Gujarat, (except Assam and UP) have started implementation Assam, Uttar Pradesh, J&K, Karnataka, Nagaland, in all approved blocks. About 22.2 lakh SHGs were and Mizoram) have entered into memoranda promoted in these intensive blocks. In the form of of understanding (MoUs) with the Society for community investment funds, Rs 204 crore was Elimination of Rural Poverty (SERP) of the disbursed during the year as compared to Rs 60 crore Government of Andhra Pradesh and the Bihar in the previous year. Rural Livelihoods Promotion Society (BRLPS) under the Bihar government for implementing the NRLM: Fronts on which Progress Is Tardy resource block strategy. Northeast states and other states with difficult terrain are expected to follow Credit Targets the ‘Resource Cluster Strategy’ following a model Even though the credit linkage strategy has been adopted in Nagaland. approved by the Ministry of Rural Development for • Intensive blocks: The intensive block strategy each state for the year 2013–14, progress on this front aims at providing enough social capital support has been rather poor. Data updation through web link (internal community resource persons or CRPs portals meant to track credit linkages of SHGs is slow. and professional resource persons or PRPs) to serve Data received from 28 private sector banks and 17 major new blocks within a period of 24–30 months. regional rural banks till 31 March 2014 reveals that The intensive blocks are expected to start working 8,99,000 lakh SHGs have been sanctioned fresh loans to in four to five villages of their cluster by engaging the tune of Rs 17,387.47 crore (state-wise credit target the available social capital/community cadres till achievement is given in the table following).

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SHG–bank credit linkage achievements

S. No. State Credit Credit Achievement till *Amount in crores Achievement linkage linkage March 2014 disbursement (Bank-wise) (per cent of 2012–13* target target for FY No. of SHGs Amount PSBs RRBs Coop. 2013−14* 2013−14) 1. AP 11,164 12,000 4,15,700 11,677 7,885 3,792 97.3 2. Tamil Nadu 2,916 6,000 56,058 1,302 1,302 21.7 3. Karnataka 2,299 4,125 1,36,627 2,026 941 515 570 49.1 4. Kerala 899 1,000 23,361 543 463 80 54.3 5. Maharashtra 578 1,000 14,650 222 198 25 22.2 6. Orissa 473 1,000 10,434 127 127 12.7 7. West Bengal 514 1,100 193,090 1,017 220 348 450 92.5 8. Bihar 222 500 7,075 52 52 10.4 9. UP 451 750 8,523 95 88 8 12.7 10. Rajasthan 211 300 1,857 23 23 7.8 11. Gujarat 120 220 4,901 43 43 19.4 12. Assam 138 315 3,618 37 36 1 11.7 13. MP 138 395 9,967 76 70 6 19.2 14. Chhattisgarh 70 224 5,156 47 42 6 21.2 15. Jharkhand 75 214 1,235 24 24 11.1 16. Haryana 52 104 797 14 14 13.0 17. Punjab 23 40 447 5 5 13.1 18. Himachal 42 89 731 11 11 12.6 19. J&K 8 14 197 1 1 10.1 20. Uttrakhand 41 128 1,612 14 7 7 10.6 21. Tripura 13 388 141 1 1 0.2 22. Mizoram 8 12 5 0 0 1.4 23. Nagaland 10 10 778 12 3 1 7 110.6 24. Manipur 4 14 105 1 1 5.2 25. Arunachal Pradesh 1 3 237 1 1 30.7 26. Meghalaya 5 8 1,924 15 1 1 13 182.9 27. Sikkim 2 7 105 1 1 14.6 Total 20,476 29,960 899,331 17,387 11,557 4,790 1,040 58.0

As the table demonstrates, only in four states has Livelihoods Promotion through the the achievement been above the 90 per cent mark. The Mahila Kisan Sashaktikaran Pariyojana performance record of the rest is rather bleak. Since inception of the Mahila Kisan Sashaktikaran The PRC agenda notes also report that the state Pariyojana (MKSP), 65 projects in 14 states have been missions with dedicated human resources have sanctioned with a total project outlay of Rs 796.77 effectively been able to contribute to the SHG crore, covering more than 26.9 lakh women farmers (FY credit linkage primarily in the intensive blocks. This 2013–14); of these, about 41 per cent belong to SC/ST is correlated to the fact the recruitment process is categories (ST 13 per cent, SC 28 per cent). There is a completed only up to 62 per cent of the approved plan to launch a similar intervention for rural artisans. positions as reported earlier.

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Human Resource Development Similarly, the government has set an ambitious target and Institutional Building of ‘Skilling India by 2022’. The Prime Minister unveiled The institutional architecture is not yet ready to the Skill India Programme on Independence Day 2014, support an ambitious pace of mission implementation. creating a new ministry to set the mission in motion and Furthermore, our academic system is not yet geared unify the efforts of about 21 ministries. The government towards creating the right cadre of people to serve the has amended business allocation rules to put the Skills large and emerging demand from the mission. As a Ministry in charge of ‘making broad policies for all other result, the mission is yet to move anywhere close to its Ministries to develop training programmes in tune with stated objective of building capacities and skills of the market requirements for the largest youth workforce in poor for gainful and sustainable livelihoods. It is high India’. Both the National Skill Development Agency time that institutional transformation is brought about (NSDA) and National Skill Development Corporation in all states irrespective of World Bank support through (NSDC) have been subsumed to come under the ambit NRPL so cogent outcomes in the league of the much- of the newly created ministry. With the ministry in acclaimed Kudumbashree in Kerala become visible place, many of NSDA’s core businesses look redundant. pan-India. However, the ministry is expected to establish better coordination in achieving the targets of skilling youth and making them employable. The government is reaching Under the aegis of the Kudumbashree programme of the out to the US, South Korea, and Australia for securing Government of Kerala, a 41 lakh strong all-women group their cooperation in skilling the youth for enhancing is fuelling micro enterprises to improve the economic employment opportunities. These changes will certainly conditions of its members. The programme has a large impact the functioning of the Aajeevika Skill programme coverage reaching 50 per cent of Kerala’s total households and its approach which had taken a shape in late 2013. with groups. Kudumbashree runs about 35,000 micro enterprises in fields as diverse as food processing, In agriculture, big changes with implications for handicrafts, cosmetics, herbal products, goatery, and NRLM are underway. These include the Agriculture travel services. Produce Market Committee Act, Rastriya Krishi Vikash Yojana, and the recently unveiled Jan Dhan Yojana which has reached a record enrolment. Imagining the Changes As is true of many other flagship programmes, there is a strong possibility that the NRLM will sooner or later The FY 2014−15 has been designated as a consolidation be revamped to target the poorest the poor (POP) more year for NRLM. Across all the SRLMs, deployment of rigorously. This POP strategy has made a beginning in the right kind of human resources is one of prerequisites four States (Rajasthan, Jharkhand, Chhattisgarh, and for the mission to make headway. There is a big demand– MP) on Community Managed Sustainable Agriculture supply gap in the human resource pool at present. While (CMSA) practices, with a specific focus on the poorest reviewing the performance, the PRC has stressed on the farmers in two resource blocks covering 20 villages each role of the SRLMs and state governments in catalysing where sufficient levels of social mobilization have been progress and in particular through the deployment of completed. human resources. With changing times, a lot is expected to change with Recently the government has laid a lot of stress on respect to targeting and service delivery systems to get building and investing in rural infrastructure. The Prime the best return on investments being made. Let us hope Minister has asked the Secretary Planning to prepare a that the achhe din (good days) in 2014 will bring right road map for convergence of ministries involved in such human resources, strong state-level leadership to manage schemes. This initiative is based on the review of the the mission, and convergent action for addressing various programmes and is a move towards setting targets multidimensional poverty issues of the large masses in for providing all houses with piped water, toilets, power the country, whichever definition of poverty, growth, and fuel, etc., by 2022. inflation, infrastructure, FDI, etc., are taken into account.

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NOTES 6. For the debate, please read articles of Shiv Biswanathan, Jairam Ramesh, and Meena Menon in The Hindu of 29 July 1. Supreme Court Judgement on Writ Petition Number 400 of and 1 August 2014. 2012 and 604 of 2013 dated 15 April 2014. 7. Rangarajan, et al., ‘Report of the Expert Group to Review the 2. Budget analysis PRS. Methodology of Measurement of Poverty’, pp. 3–5. 3. Economic Survey 2013–14, quoted in Ashish Kothari, 8. Jean Drèze and Angus Deaton, ‘Squaring the Poverty Circle’, ‘Budget’s Ecological Bankruptcy’, The Hindu, 21 July 2014. The Hindu, 25 July 2014, P-06. 4. ‘Recommendations on Strengthening the SC–ST (Prevention 9. ‘Cabinet Approves Change in Labour Laws’, Live Mint, dated of Atrocities) Act 1989 and Rules 1995’ by NAC, nac.nic.in/ 31 July 2014. pdf/scst_recom.pdf, accessed on 26 August 2014. 10. Economic Survey 2014–15, Planning Commission, Ministry 5. The SC–ST (Prevention of Atrocities) Amendment of Finance, Government of India, New Delhi. Ordinance, 2014, dated 4 March 2014. 11. Report published in March 2014.

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N. Srinivasan

INTRODUCTION The difference is significant on account of the differences in availability of funding as also markets for the outputs. The term livelihood means various things in varied contexts Non-farm sector has a substantial services sub-sector and to different people. The term is understood and in which job skills play an important part. Livelihood interpreted from a wide variety of perspectives in terms of activities are also differentiated in terms of size and scale. size, location, skillsets, and income. For the purpose of this Household-based activities are usually termed as income- section, we define livelihoods as an activity or set of activities generating activities where the individual and, at times, carried out by an individual or a household to earn an income members of the household carry out the activity aimed at necessary to ensure his/her survival and existence. Livelihoods earning income. Where the activity is carried on with hired could thus mean enterprises, income-generating activities labour and involves some investment, it is termed as an (IGA), self-employment, wage employment, and the like. enterprise. Apart from these, wage employment sustains To limit the scope of discussion in this section, we would livelihoods. However, wage employment is not the focus examine finance made available to people to pursue income- of this chapter except to the extent of finance required for generating activities or small and tiny enterprises that enable building skills necessary for gainful employment. them earn a life-sustaining income for their households. Livelihoods basically fall into two broad categories: one of farm-based activities and the other which falls ROLE OF FINANCE IN LIVELIHOODS outside the farm. There are differing requirements of finance in both these categories of livelihoods; also, there Most livelihoods require funding to start up and run. are significant differences within these categories across Depending on the nature and size of the activity, the different types of livelihoods. To a large extent, this chapter type of funding required will vary. The variations can will focus on rural livelihoods. There is a distinction made relate to duration, seasonality, size, moratorium periods, between farm-based livelihoods and non-farm livelihoods. repayment intervals, and collateral availability. From

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the demand side, there are several inhibitors to funding entail repeated visits to the branches. However, the interest access such as lack of owner’s equity, small ticket size, rates of banks are considerably lower than most informal unpredictable cashflows, lack of collateral, absence loans. For a borrower requiring a small amount, a bank of records of income and expenditure, and a weak loan might be prohibitive in terms of effective costs. The linkage to inputs and markets. Most IGA tend to start sanction of the loan is not predictable and hence small up with the owner’s funds and are subsequently able to borrowers tend to seek alternative channels such as self- access external funds. Financial institutions like to see help group (SHG) loans or microfinance institution (MFI) investment in the IGA/enterprise by the owners in the loans, which are easier to access and serviced at the doorstep. form of equity. Even where owner’s equity is visible in Cost of credit and its affordability have a critical bearing the form of sunk investments (such as land in case of on the demand. Higher interest loans applied in rapid farm-based activities), banks require margin money turnover trading businesses seem serviceable. A loan of, to be brought in. The margin money requirement is say, Rs 20,000, turned over every fortnight will enable typically about 25 per cent if the loan is sought for the the borrower earn incomes on a trading volume of about IGA. This is brought from own sources such as savings or Rs 2.4 lakhs. The trade margins from such a large base informal borrowings. While margin money is normally will facilitate servicing of the loan, even if the interest rate a proportion of the loan applied for, the owner’s stake in is higher. The high interest rates prevailing in day loans business is more of a long-term investment that does not (5 to 10 per cent per day, typically availed by vegetable, relate to the loan amount or duration. Banks take into fruit, and fish hawkers) becomes affordable on account of account the owner’s stake in the activity while deciding the high margin in these trades, but these also carry high on the loan terms. If the owner’s stake is high, banks are risks. But recovering from these high risks can be a tall comfortable in financing such IGAs/enterprises. task for those with small means. Agricultural loans, on the other hand, do not generate a rapid and frequent turnover of stocks in trade. Investments in agriculture are even more EXTERNAL SOURCES OF FINANCE long term, with returns accruing over years rather than days or months. The structure of loans and pricing thereof Banks, financial institutions, and non-institutional sources should not be compared with what is prevailing elsewhere. are relied upon for funding livelihoods. Public sector A differentiation between the interest charged on banks, private sector banks, cooperative banks, cooperative loans and the cost of credit should be made. While there societies, microfinance institutions, non-banking financial can be opinions on whether a particular interest rate is companies (NBFCs), some credit projects of governments, high or low, whether it is affordable for the intended and donors form the formal institutional base for livelihoods use is determined by the rates of return in the enterprise finance. Informal borrowing for funding livelihood to which the credit is applied. A further aspect for activities from friends, relatives, moneylenders, pawn consideration is whether the bank/credit institution is brokers, traders, input suppliers, produce buyers, and others making profits out of its lending portfolio. Evidence is also usual. While formal institutions have structured from the field suggests that most farm loans (especially products with defined features and clear processes for the smaller ones) are not profitable for the banks and assessing loan proposals as also servicing loans, the informal they seem to be subsidizing the losses from other revenue lenders operate in an opaque environment with unclear streams. The interest subvention scheme seems to have loan features and terms. The nominal cost of loans to the a debilitating effect on banks, especially on cooperative borrower can be high in the case of informal channels, but banking system (this is explained later). effective costs (that include, apart from interest, cost, time, Typically, a farmer undertakes cultivation as the and effort spent on getting a loan processed) of the formal physical outputs are much more than inputs and as a sector can be high according to a few studies carried out result of cultivation efforts, the farmer is able to get a in recent years. Borrowers have invariably found informal net return on his investment. The farmer requires credit loans very easy to access, though high in costs. Formal loans to finance the inputs and cultivation costs. As long as carry difficult documentation requirements, take time, and the value of outputs is much higher than inputs and

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the profits cover interest costs, the farmer will find the daily, weekly, or monthly installments as long the sales cost of credit affordable. Commission for Agricultural are made in cash. A dairy usually gets paid for his milk Costs and Prices (CACP) has calculated the profitability in weekly, fortnightly, or monthly intervals. Monthly of various crops in its annual reports.1 The returns over repayment installment for a dairy loan is a feasible all costs including the rental value of land in case of proposition. However, the installments should factor in owner-cultivators (C2 costs) were significantly lower. the dry period during which there will be no milk flow Ragi had a negative return of 17.6 per cent, while jowar available for sale. A crop loan for paddy or gram cannot and maize had a return of 2.1 per cent and 9.7 per cent, have installments of repayment, and during the cropping respectively. The highest return was on tobacco at 53 per season no income is generated. While all the costs are cent, followed by tur at 33.1 per cent. When cost of credit incurred during the crop season, income is realized after at borrower level rises beyond a threshold and where the harvest. Crop loans, therefore, need to be designed as farming is credit intensive, the farmer gets an unattractive lumpsum repayments of the entire loan with interest net return. Continuing low returns will adversely affect after harvest. Depending on the crop maturity duration, loan repayments. crop loans can be six months to eighteen months long. At times, the unlimited demand for credit is mistaken For activities such as petty trade, shops, and hawking, a as proof of affordability and appropriate pricing. Scarcity credit line that can be operated like a checking account of financial resources leads people to borrowing on any (cash credit) is most suitable. Such businesses depend terms in desperation. Under such circumstances people on having adequate stock in trade to generate sales and do not take an informed choice on the loan terms. In a incomes. A loan that in repaid in installments reduces the quest for survival, loans are taken regardless of the price stock in trade towards end of the loan period and does and consequences. not produce adequate sales and incomes to the owner. The nature of demand for credit in livelihoods has Hence the loan should permit drawals and repayments to be understood. The livelihood activities, with the depending the requirements of the business. variety discussed earlier, require a number of different Vulnerable livelihoods do not have significant equity product features. Investment in livelihood assets such as invested and the owners are not in a position to bring in a cow or a shop requires loans that will be repaid over a such equity. The loans should be sufficient to fund the period of time. Long-term loans are appropriate where total requirements of the activity and build a small buffer the investment produces a stream of income over a long towards unforeseen expenses. Very often, unforeseen period and is available to repay the loan. The time taken consumption requirements force people to take resources for the investment to commence producing income is a out of the livelihood activity and meet the emergencies. material factor in deciding on when to start the repayment If the loan size anticipates such needs and provides for installments. A coffee plantation might take more than the same, livelihood activity and income earning will five years to yield fruits and an auto rickshaw might start continue without disruption, reducing of default risks. yielding an income from the first day. A long-term loan Thus, from the demand side, a number of features have given for coffee should have a repayment moratorium to be considered in designing a suitable credit response. for about five years if marketable production starts after When the product and process respond well to the demand, five years. On the other hand, the auto rickshaw loan risks are reduced for both the borrower and the lender. can have repayment installments starting immediately without any moratorium. Short-term loans are required to finance production, FINANCIAL INSTITUTIONS marketing, and trading operations where incomes are AND LIVELIHOODS produced within a short period of the activity being taken up. Here too the nature of short-term loan will have to be Table 3.1 indicates the number and amount of loans determined in accordance with the cash flows produced provided by financial institutions to people for financing by the activity. A shop can produce daily cash flows and their livelihoods. There are about 178 million loan accounts a loan for stock in trade in the shop can be repaid in reported by banks, cooperative societies, and MFIs.2 As

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Table 3.1 Livelihood loans outreach Type of institution/purpose No. of accounts Amount of loans Average loan per (in million) (Rs billion) account (Rs) Commercial banks (March 2012) Agriculture 42.9 4,407.58 1,02,740 Small enterprises 9.9 5,276.84 5,33,000 Coops and Societies (March 2012) − mostly agriculture 44.8 912.43 20,370 SHGs (March 2013) Groups 4.5 88,500 393.75 − different activities Members 58.5 6,810 MFIs (March 2013) – different activities 27.5 223.38 8,120 Sources: Data from Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD) for bank loans; NABARD for SHGs; and Sadhan for MFIs.

against this, the adult population (18 years of age and of 762 million adults and 250 million households,4 the more) according to the 2011 census was 762 million. About number of loan accounts for livelihoods stands dwarfed. one of four adults had access to some form of credit. It is The different pieces of data confirm the widely held belief difficult to assume that each loan account is for a unique that the coverage of livelihood activities with bank finance individual. In case of MFIs, a large number of customers is not satisfactory. The ongoing financial inclusion efforts have two loans and in case of SHGs too in southern states, do not target livelihoods, but opening of savings accounts women have been members in more than one group. In and small overdrafts. There is a long way to go in terms of case of loans from banks, several farmers have more than outreach in livelihoods finance. one loan, typically a Kisan Credit Card for short-term Finance from banks and others for livelihood activities needs and another for long-term investments. The point has been less than adequate for a large number of borrowers. is that the reported 178 million accounts might actually As for agricultural loans, the national average conceals the relate to a much lesser number of individual customers, small-sized loans made in several states and to small farmers. thus reducing the effective outreach. Three indicators taken (Table 3.2) for comparison of The agricultural census estimated that there were financing agricultural livelihoods across states are the 137.75 million farm holdings in the country in 2011. credit to gross domestic product (GDP) ratio in the The number of agricultural loan accounts of both state, per hectare agriculture credit outstanding, and the commercial banks and cooperatives put together average credit limit sanctioned per KCC. The comparison amounted to 87.7 million, leaving about 50 million of credit to GDP ratio shows wide variation, with uncovered. Almost all the uncovered farms were that of Tamil Nadu enjoying credit almost to the entire extent small and marginal farmers. In case of small enterprises, of output produced (94.7 per cent), while at the other the Ministry of Medium Small and Micro Enterprises extreme Sikkim is finding credit support to an extent of estimated that 44.76 million working enterprises were 3.4 per cent of GDP from agriculture. Per hectare loans functional in 2011–12.3 The number of small enterprises outstanding reflect credit intensity, which was the highest financed by banks were at 9.9 million in 2011–12, in Kerala at Rs 1.27 lakh (on account of multiple crops and constituting about 22 per cent of working enterprises. In plantation crops). Sikkim farmers with an average loan case of SHGs, the number of groups having credit access outstanding of Rs 2,669 per hectare might be finding it was about 4.5 million, which was about 60 per cent of extremely difficult to meet production expenses. Similar SHGS that were linked to banks. The national-level is the case in Kisan Credit Cards. Punjab farmers having programme of livelihoods, National Rural Livelihood an average sanction of Rs 3,13,000 per card seemed to Mission (NRLM) reported that it had disbursed Rs 8.7 have excessive access to credit, while Tripura and Orissa billion as community investment fund (equity type farmers with Rs 14,400 and Rs 17,750, respectively, per funding) to about 1.9 million SHGs and facilitated 34.3 KCC are likely to face scarcity of resources. Field studies billion in bank loans during 2013–14. In the backdrop show a mix of plentiful credit in some geographies and

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Table 3.2 Finance for farm livelihoods: Comparison with credit deprivation even more severe in the case of across states unregistered and tiny enterprises. 2011 2012 The supply side of finance has fallen into a routine State Agri credit Outstanding Average of scheme-based financing of activities. When potential as % of loans (Rs/ha) limit customers apply for loans, bank staff verifies whether the GDP sanctioned proposal fits within the schemes of the bank concerned. (Rs/KCC) In case of proposals that have new elements, banks deny Punjab 51.90 82,876 3,13,588 loans except where the loan requirement is large. For Tamil Nadu 94.70 1,22,892 1,35,461 instance, a farm with three different crops and other farm- West Bengal 22.90 40,828 36,300 based activities cannot get a loan for the farm as a whole. Goa 16.90 22,361 96,768 Uttrakhand 46.80 67,841 77,728 It can get a crop loan or an investment loan. The reality Haryana 54.00 76,330 1,75,588 of rural households having multiple livelihood activities Gujarat 44.40 29,119 94,500 and differing seasonal cashflows is not usually recognized. India 47.70 39,983 77,967 The reluctance to examine each farmer’s loan requirements Himachal Pradesh 32.40 70,512 1,16,239 stems from high costs of appraisal of numerous small Kerala 81.30 1,27,699 1,03,650 individual proposals and the high-risk perception that Maharashtra 42.10 10,000 76,943 clouds the vision of branch staff. Further, the loan tenures Bihar 29.30 25,174 63,513 Uttar Pradesh 32.90 31,414 77,257 in rural livelihoods have been declining over time. Banks Sikkim 3.40 2,669 71,012 tend to offer shorter loan maturities despite the underlying Andhra Pradesh 60.40 76,461 62,830 purpose of loans being of a much longer term. With farm Karnataka 53.90 35,586 95,023 and non-farm livelihoods requiring higher investments to Orissa 42.10 28,704 17,753 produce reasonable incomes, shorter loan maturities do Mizoram 13.50 13,459 55,820 not help the borrowers in meeting loan service obligations. Jammu & Kashmir 18.50 26,281 70,811 A reason for the default in the case of livelihood loans is Arunachal Pradesh 4.70 4,009 34,425 Meghalaya 3.50 3,463 31,958 the inappropriate structuring of the loan in terms of size, Assam 12.20 13,109 31,072 maturity period, and installment intervals. Tripura 18.80 20,490 14,450 The high-risk perceptions of banks lead them to reduce Rajasthan 40.90 18,620 1,22,953 the loan size, the loan period, and demand collateral. The Madhya Pradesh 58.80 23,017 1,00,265 inadequate loan size compels borrowers to complete the Chhattisgarh 43.90 20,353 41,953 investment by borrowing elsewhere, often at high interest Jharkhand 25.80 27,385 28,117 rates. These high-cost loans are serviced first, sowing seeds Source: Author’s calculations based on data from RBI and NABARD. of delinquency in bank loans. The shorter loan periods result in higher loan repayment installments which are crops and scarcity of credit in others. While there will difficult to service with the income produced and also lead be variations across states depending on the local agro to defaults. Lack of collateral can result in denial of loan or climatic conditions and also the crops grown, for the a very limited loan size. The high-risk perceptions of banks same crops across neighbouring states, one does not alter loan terms to the detriment of borrowers, eventually envisage huge differences. However, the data shows that increasing the risk of default in the banks’ hands. such huge differences exist. The inevitable conclusion is Another issue in bank lending for livelihoods has been that the banks’ credit decisions do not really depend on that it has focused on production and ended up financing crop prospects or farm viability, but on other extraneous only the cost of production with respect to several crops considerations relating to the individuals financed and and in certain regions. The failure of banks to focus on their risk perception relating to the geographical area marketing and income realization has led to a shortage of or the state. Credit for farm livelihoods is not equitably working capital whether it is in the farm sector or in the distributed and it does not support all farms adequately. non-farm sector activities. In case of agriculture, the ratio Similar is the situation in the case of non-farm livelihoods, of cost of production to the value of output was as high

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as 1:3.5 By accommodating only the cost of production marketing infrastructure and logistics, giving physical within the credit facilities, the farmers had been forced to capacities for farmers to store their produce. There are also look for immediate marketing of output at the post-harvest mechanisms for aggregation in the form of commodity stage, which reduces the income realization potential. cooperatives, processing units also, and producers’ An associated issue was the lack of a well-thought-out organizations that help farmers to pool their produce and lending strategy that looked at the different parts of the then market the same with or without processing. Even chain through which the agricultural commodities move in these cases, financing had been a critical constraint. to the final markets. HDFC Bank has a different strategy Producers’ organizations typically find that they do not to lend directly to small customers (Box 3.1). Significant have the collateral required by the banks. Value chain investments in post-production infrastructure and based approaches in the farm sector will significantly add enterprises engaged in aggregation, processing, sorting, to both livelihood opportunities and income realization in grading, packing, transport, and marketing would have the hands of farmers. The post-production requirements of ensured that farmers get a much better access to markets, the farm sector are indeed high and have higher investment leading to a better price realization. The holding capacity intensity. Banks need to focus on these areas. of farmers would have ensured that they are able to store Many non-farm enterprises too have found finance produce and time their entry into the market. These hard to come by. The data on bank credit outstanding aspects of the livelihood economic activities had been as a proportion of fixed assets of small enterprises was ignored by the banking system for a long time. In the about 64 per cent. Of gross value added by the non- recent past, there have been some initiatives in creating farm sector units, bank credit was about 41 per cent.

Box 3.1 HDFC’s novel livelihoods finance progamme HDFC Bank’s Sustainable Livelihood Initiative (SLI) is a business model that has helped empower people, particularly women, in rural parts of India. Through this initiative, the bank reaches out to 3.5 million families in 25 states, with cumulative disbursements exceeding Rs 45 billion. The customers are mostly the un-banked and under-banked segment of the population that are provided with livelihood finance. The SLI adopts a holistic approach. It ensures that it develops a deep understanding of the needs of each of the women. The key to success has come from the realization that the bank must move beyond its traditional role and support the women in two critical aspects: first, in helping them build and enhance skills that can help generate and grow their income. For this purpose HDFC is working in partnership with 2,000 NGOs to provide skills training in the chosen livelihoods activity. Once the activity is started by the customer, with the help of large organizations, a link is established to markets and others who can help the women market their products. What does the Capacity Building Programme do? According to the bank, • it helps to improve the income of the family; • it builds the confidence of these women by providing a way to earn a livelihood; • it teaches them how to manage their money and repayments in a prudent manner; • it improves the quality of products; and • it identifies efficiencies that further help improve productivity and the market potential of the products produced. The bank has a separate vertical to manage the SLI. Special staff recruited mostly from the local area are trained and employed in mobilizing customers, training and monitoring their performance. The customers are organized into joint liability groups (JLGs) and financed as JLGs. The field staff mimic the credit officers of the MFIs in their processes. The rate of interest charged by the bank is around the same rates charged by the MFIs. The novelty of this model is that HDFC Bank has managed to operate in the small-ticket loans market in a nimble-footed manner, often competing with MFIs. HDFC Bank has not shied away from the pricing question and has ensured full cost coverage. It has demonstrated its sensitivity to customer needs through dealing with their skill and market linkage needs. The significant aspect of SLI is that it is not attempted as a pilot—it a full-scale model that is part of the business strategy of the bank for including financially excluded in a sustainable manner, with benefits for both the customer and the bank. Source: HDFC Bank website, Sustianable Livelihood Initiative, Newsletter August 2014, and discussions with field Staff in Shillong.

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In agriculture where the land cost is not financed, the Another study carried out by NCAER8 found that proportion of credit to agricultural GDP was higher the cost of borrowing for a small borrower from a formal at 48 per cent. The credit to GDP ratio at the country institution was 15.7 per cent and that of an SHG member level across all sectors was about 52 per cent.6 The data from his group was 20.5 per cent. The MFIs entailed a shows that underfinancing of the non-farm sector is more cost of 26.4 per cent for the borrower and loans from severe than in the case of agriculture. A study carried out informal sector carried a cost of 44.6 per cent. However, as by IFC recently estimated the realistic credit demand indicated in the IFMR study, banks tended to lose money for MSMEs that is immediately realizable at Rs 9,900 in providing loans to the small borrowers as they did not billion. Forty-four per cent of this demand is estimated reckon their total operating cost as also the risk cost in to arise from micro enterprises. The unmet demand is determining the rate of interest charged to customers. almost twice the current outstanding loans to non-farm Banks welcomed the SHG model as it aggregated the sector units in the country. The micro enterprises in demand of 15 to 20 borrowers and increased loan size particular—requirements ranging from Rs 50,000 to while reducing the number of customers and associated Rs 2,00,000—find it extremely difficult to access credit. documentation and monitoring costs. In the recent past, even this aggregated demand of 15 to 20 members seemed low to banks, which have started looking for options to COST OF INTERMEDIATION finance federations that can on-lend to groups. The lower risk cost of dealing with groups is an additional positive Very small loans and big banks are not compatible. The feature. Banks have responded positively to financing costs of dealing with small customers are found to be high, Joint Liability Groups (JLGs) of farmers and others for especially when periodic monitoring of borrower is required the same reasons as in the case of SHGs. The JLG loans to be undertaken. The appraisal and documentation costs are larger in size and offer improved ‘cost to income ratio’ in the hands can be high and in case of defaults, the costs for banks. The transaction costs of the borrower in group of managing delinquency is much higher. Banks have an modes of financial access can also be high on account aversion to small-ticket business as it impairs their viability of the periodic meetings, if the bank staff attends these on account of self-imposed pricing restrictions. There meetings. The frequency with which these meetings are have been a few studies carried out to understand the cost held (and attended) will determine the extent of the costs. structure in providing credit to rural areas and microfinance While bank staff attends the SHG meetings in the initial clients. The study carried out by IFMR7 calculated the period after their formation or the disbursement of loan, costs of banks providing loans to small borrowers as also subsequent visits to the groups are infrequent. Many to SHGs and compared the same with the cost of MFIs. MFIs have reduced the meeting frequency, going from The study found that the public sector banks carry much weekly meetings to once in a fortnight or even a month. higher costs in providing small loans to customers, which The reduced frequency of meetings has significantly was at 32.39 per cent compared to private sector banks, reduced borrower transaction costs. which incurred a cost of 21.56 per cent. The cost of an MFI in providing loans to customers was 8.74 per cent and in the case of SHGs, it was 6.30 per cent. But the GOVERNMENT POLICY AND STRATEGY overall cost including the financial cost was the highest in IN FINANCE FOR LIVELIHOODS the case of direct loans by banks to customers at 41.53 per cent and in the case SHG loans by banks it was 28.93 At a policy level, the government and the RBI have per cent. After reckoning the returns on these loans, the initiated several measures to ensure that livelihoods, banks were incurring losses on providing loans to small especially of vulnerable people (both farm and non-farm barrowers. Public sector banks on an average made a loss based) get access to finance. The priority sector lending of 29.5 per cent and private sector banks made a loss of framework came into existence to support mostly 20.7 per cent. In lending to MFIs, both public and private income-generating activities of different kinds apart from sector banks lost 1.75 per cent if the MFIs were AA rated. certain other national priorities. The policy on priority

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sector loans was followed up by specific interventions in aspirations of people in different parts of the country. The relation to plans and strategies at the bank level, which preference of banks to work with the creamier sections of were implemented through the lead bank scheme and the the poor resulted in the poorer sections being served less. credit planning exercises of the banking system. The RBI The remoter parts of the country where the infrastructure, and NABARD also thought of providing a much clearer communication, and linkages were poor did not have pathway for banks to be able to support livelihoods the benefit of banking services. The government at the activities through credit by looking at both the processes centre and in the states have been seized by the issues of lending as also the necessary products. Thus were concerning livelihood promotion and support. While born the group-based intermediation processes such as skill training, enterprise facilitation, and, to some SHG–bank linkages and JLG lending based on collateral extent, inputs and market linkages are arranged by substitution. In terms of products, the Kisan Credit government agencies (with varying levels of efficiency and Card had been a major driver of financing agriculture. commitment), finding financial sources for investment in Mechanisms such as fixing unit cost for different farm the livelihood activities has been a problem. Integrated and non-farm activities and ensuring potential-based Rural Development Program (IRDP) tried to dovetail the planning for the local opportunities available to expand government agencies’ efforts with bank loans. The target people’s choices in taking up income-generating activities tied credit disbursement approach was born in the mid- have also been extensively used. 1980s. The IRDP transformed into Swarnajayanti Gram However, the policy, strategy, plans, processes, and Swarojgar Yojana (SGSY), with improved features of back- products did not entirely deal with the set of issues ended subsidy. Currently, NRLM has replaced SGSY as arising in the livelihoods finance space (Table 3.3). The the major livelihood promotion initiative. The NRLM institutional architecture was inadequate to meet the seeks to place emphasis on creating community-based

Table 3.3 Gaps in livelihood finance Gap Nature of gap New crops/activities, non-traditional Bank staff in branches unable to customize credit products for new and livelihoods non-traditional livelihoods—they require predetermined schemes to finance. Long-term loans, especially those with Such products are designed, but not adequately offered on account of perceived gestation periods such as in post-harvest high risks; high collateral requirements make access to such products difficult. infrastructure, plantations Value chain based investments, especially Suitable investment activity based products not designed—financing based on in farm gate infrastructure (pack houses, collateral available. graders, sorters, packing machinery) Small loans in non-farm sector While some products such as composite loans, general credit card, and Swarozgar credit card are available, these are rationed out to very few people. Risk perception in financing services is high. Marketing and trade finance for farmers and The marketing credit products earlier available from cooperative banks to farmer organizations cooperative societies and their member farmers has shrunk. Advances against warehouse receipts is increasing, but farmer-level adoption of this has been difficult on account of the large ticket size of warehouse storage contracts compared to small crop volumes at the individual farmer level. Small loans to groups (SHGs) Available, but adequacy and timeliness have suffered. Continuation of credit facility after one loan is repaid is not certain, thereby disrupting livelihoods. Estimated demand–supply gap is very large. Insurance Agriculture and livestock sector suffer from unsuitable and ill-designed products. Plantation insurance, commercial crops insurance, and livestock insurance are rationed out for fear of moral hazard generated claims. Weather-based insurance coverage is thin and not closely related to crop production. Source: Excerpted from N. Srinavasan’s ‘Status of Rural Finance in India: A Summary’, commissioned by GIZ and NABARD.

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organization right from the village to the state level to deal term loans with long-term assets that produce incomes over with livelihood finance issues. The government provides a period of time is very difficult and the resultant liquidity corpus fund assistance to SHGs and also a community stress is being serviced by managing the liquidity by the investment fund to increase the loanable funds in the hands farmer and not by incremental income arising from the loan of federations of SHGs. The rate of interest on bank loans financed assets. This is an aspect which has to be seriously to SHGs in select districts has been subsidized (brought considered by banks and also by the government. Third, the down to 4 per cent in the hands of the groups). The share of interest cost in the overall production cost is small. corpus and community investment funds made available The government, instead of focusing on reducing the cost to SHGs is expected to start up livelihood investments by of credit only for those farmers borrowing from a bank, a number of members without relying on bank loans in should shift its focus to improving the price realization on the initial period. The SHGs with some experience and a the commodities produced. An increase in market prices track record of intermediation with these funds will then through whatever means achieved will benefit all farmers be able to attract bank loans of a larger size. In fact, NRLM regardless of whether they borrow from a bank or not. So, has a more detailed roadmap of the financial architecture the interest cost reduction objective should be replaced required for supporting SHGs under NRLM than for the by an income enhancement objective on the part of the livelihood strategies. Some of the assumptions relating to government if the livelihoods have to become sustainable. credit demand (Rs 1,000 billion) and management ability Finally, the impact of interest subvention schemes on of community-based organizations in handling such large banks should be considered in detail. The cooperative volumes might require a relook. credit structure comprising the three tiers had found its The involvement of governments in ensuring flow of margins squeezed to render most of them unprofitable finance for livelihoods is no doubt encouraging and reflects if they handled large volumes of crop loans (Figure 3.1). the concerns of the state for the vulnerable. However, the The cooperative structure in Haryana had a spread of 5.75 strategies chosen and instruments employed for ensuring per cent between NABARD refinance rates and ultimate funds flow should not distort the market and hurt the borrower interest rates in 2004. This had declined to an sustainability of banking and financial institutions. The unviable level of 3.25 per cent to be shared between State distortion of credit market through interest subventions Co-operative Bank (SCB), District Central Cooperative (which favour bank customers and ignore the financially Bank (DCCB), and Poorest Areas Civil Society (PACS). excluded), violation of credit discipline through mass waivers, and creating dependency in people though various 12.00% ill-designed support schemes certainly do not qualify as ideal measures of creating sustainable livelihoods. The 10.00% hidden costs of such state support could be far greater than the benefit produced. For example, under the interest 8.00% subvention scheme, whether the low rate of interest will 6.00% actually improve the farmers’ well-being is not clearly established. One of the issues with the subvention scheme 4.00% is that it favours farmers who can access bank loans and 2.00% provides them the benefit. As stated earlier, 45 per cent of the rural people are unable to access banking services and 0.00% almost 75 per cent of small farms are unable to access bank

credit. The subsidies reach those who are large farmers and 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 those who have the capacity to deal with banks. Second, the NABARD to SCB SCB to DCCBs reduction in the rate of interest is only for short-term crop DCCBs to PACS PACS to farmers loans. Farmers arbitrage on the rate of interest and apply the short-term loan for long-term investment purposes and this Figure 3.1 Spread available on crop loans to cooperative credit puts their liquidity under severe stress. Serviceability of short- structure in Haryana

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Creating a facilitating environment for livelihoods Livelihoods of SHG members require different to thrive and prosper through better access to markets, institutional and financial product designs. State reduction of costs of doing business, providing interventions usually suffer from aggravated supply-side infrastructure and basic public services, and a hassle- assumptions and distort the priorities of households in free interface with government agencies for the small livelihood enterprise activities. As for financial products, the producers will produce superior results. Governments existing cash credit based lending to SHGs is not suitable should desist from looking for credit fixes when other for supporting members’ investment requirements. SHGs problems relating to sustainability of livelihoods within typically provide one year loans to members, recoverable in the state’s domain remain unsolved. 12 monthly installments. Some SHGs provide longer-term loans, again recoverable in equal monthly installments. Short-term EMI repayment loans are suitable for trade MICROFINANCE AND LIVELIHOODS and business type livelihoods where the trade turnover provides the cashflows to meet monthly repayments. As The SHG movement started off as a social capital explained earlier in the demand side issues, as the loan gets building effort that would lead to access to mainstream liquidated month after month, the business suffers as it has financial services. The graduation concept that entered less cash to hold stocks, leading to lower sales. In the case later envisaged SHG members taking up income- of investments that pay back over a longer term, the SHG generating activities that would enhance their incomes. loan structures are not suitable. Rearing of goats, poultry In the two decades of SHG–bank linkages, the maximum farming, pig rearing, or farm-based activities have lumpy number of members of SHGs that had taken loans from cashflows and might require a longer repayment period banks is reported at 62 million.9 The management without monthly installments. Another problem faced by information system (MIS) put together by NABARD SHG members is that the loan size is too small to support does not provide data on livelihoods created or supported a complete livelihood adequate to support a family. through the SHGs. The public domain data available in Rationing of credit by banks on account of risk perceptions this regard is from Andhra Pradesh. The Society for the is a reason. The uncertainty of a subsequent cycle loan after Elimination of Rural Poverty (SERP), AP reports that a loan is repaid threatens the sustainability of livelihood 24 lakh farm livelihoods and 65,000 livelihoods based activity in many cases. These operational issues have on livestock have been supported out of a membership significant adverse impacts on the poor. Financial product of 116 lakh by March 2014. The livelihoods supported solutions should look to provide flexible longer-term loans and sustained form about 25 per cent of members linked for the SHGs or their federations and leave it to them offer through SHGs. Hand in Hand (HIH) India has reported suitable loan terms for their members. that of its 9.8 lakh SHG members more than 10 lakh In the case of MFIs, the loans are small and can support family-based enterprises have been created/supported, very small livelihood activities. The monthly/fortnightly/ besides 24,000 micro enterprises.10 The message from the weekly installments will be inconvenient for many farm- SERP and HIH datasets is that SHGs can and do create based activities. Livestock is one of the major segments livelihood opportunities. The nature of the enterprises for in the rural loan portfolio of MFIs. Most livestock- the most part may not be full-time vocations. They may based livelihoods require long-term loans on account of merely be supplemental and, in many cases, seasonal. gestation periods and investments in infrastructure. The This explains why the number of family-based enterprises RBI regulation stipulating 70 per cent loans for income- exceeds the number of SHG members in the case of HIH. generating activities has made MFIs focus on the nature Financing of such livelihoods is a difficult task indeed, of livelihoods that loans support. Some MFIs have also given the problems of working out cash flows and rates invested in developing skills of borrowers in the chosen of return on small, seasonal activities. When financing livelihood activity (Box 3.2). There are some MFIs groups, the task of ensuring sustainability of livelihoods that have ventured out to finance small and medium and, therefore, the utility of finance for the household is enterprises (SMEs). Bandhan, Equitas, Grameen Koota, very difficult. Ujjjivan, Janalaxmi, and others offer micro/tiny enterprise

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Box 3.2 Financing activity based groups for livelihoods The Dairy Hub In Melmalayanoor, Tiruvannamalai district of Tamil Nadu, Hand in Hand India has promoted a dairy hub with 280 women dairy entrepreneurs as members. The hub acts as a training-cum-production centre, run by the group members. The hub enrolls new members, arranges for inputs, trains the members in improved skills of dairying, ensures quality control, searches for markets, contracts for sale of milk, and manages the finances. Further the hub also arranges for animal healthcare and insurance. Hand in Hand has arranged for financing of the entrepreneurs for purchase of milch animals through financial linkages for the SHGs and dairy activity groups. ADFT, NABARD, Chennai provided loans to Hand in Hand for on-lending to groups. Pallavan Gramin Bank has provided direct loans to the SHGs that are part of the hub. Thus HIH provided loans on its own account and also acted as a facilitator for bank loans where banks were willing to directly lend to the groups. This model emphasizes the completion of all linkages—backward and forward—and accessing finance from all available sources. The initial impact has been improved productivity by about 3 litres of milk per day per animal, reduced cost of inputs by 15−20 per cent on account of aggregation of demand, a 30 per cent increase in price realized per litre of milk, and regular payments for milk sold once in every 10 days. The future plan is to promote a producer company when sufficient members enroll so that scaling up can be achieved on a sustainable basis. Source: Dairy Value Chain, publication by Hand in Hand India 2014.

finance in the range of Rs 50,000 to 10,00,000. However, all those with an effective demand. The last five years have with the limitations imposed on MFIs, enthusiasm to seen an increasing recognition that most past efforts have expand this portfolio in the current environment will fallen short of including all people with a need, thereby be limited. Further, the experience of some MFIs that hindering inclusive growth. The suitability of modern tried out individual financing of large loans has not been banking (even in the public sector) to deal with small as good as in the smaller group loans. Any new product ticket financial needs has to be examinedde novo. The idea in the SME space involving MFIs should deal with business correspondent model has witnessed reluctant the regulatory limitations on the portfolio share of such endorsement from most banks. The banking system does loans, the risk profile of SMEs, and the need to build not seem to believe in the idea of ‘fortune at the bottom skills in MFIs that might require a reasonably large of the pyramid’. Unfortunately those who believe that portfolio to justify costs. financial services poor is a viable business model such as Producer companies have considerable potential to MFIs are not taken seriously. provide customized, product- and process-specific loans to Financial inclusion products have to significantly change the producers and integrate the outputs with the market. before they become effective in supporting livelihoods. Producer companies can easily finance a few contiguous The no frills accounts (BSBDA) cannot make a significant links in the value chain. The potential is yet to be realized, change to the practice of livelihoods. Nor will the promised but there are a number of experiments and pilots that are overdraft of Rs 5,000 to select customers enable livelihoods underway. A detailed treatment of producer companies’ to prosper. A meaningful credit initiative that protects banks operations and performance is carried in another chapter. from high risks and customers from high costs is what is needed. Financing institutions—both micro and others— have not invested enough time and effort in understanding RELEVANCE OF EXISTING FINANCIAL the nature of demand and the real needs of excluded people. INCLUSION EFFORTS TO LIVELIHOODS Adequacy and timeliness of credit are issues as also are loan maturities and cost to the customer. The enablers for finance The public sector character of banking was thought to be effective in livelihoods such as technology, enterprise to be sufficient to meet the needs of the poor and the skills, and access to markets are scarce. Public sector supply vulnerable and to ensure that financial services reached of such enabling services is tardy. State and bank funding

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of institutions that can make such enablers available is not finance is not a welfare activity. It is commercial, and seen as inclusive finance. The policy intent and a reasonable both the lender and borrower should be disciplined institutional network are already there. The willingness in their roles. The state should respect the sanctity of on the part of different players needs to improve as also financial contracts between banks and borrowers and the operating environment in which serving the excluded support sustainability of financial institutions even as it becomes a viable business proposition. encourages the development of viable livelihoods.

THE WAY FORWARD NOTES

Considerable progress has been achieved in enhancing 1. Price Policy for Kharif Crops Marketing Season 2012–13, Commission of Agricultural Costs and Prices 2013. institutional presence and moderate progress in expanding 2. The data relating to banks and cooperative societies pertains banking outreach. Through three decades of government-led to March 2012 and that of MFIs and SHGs relates to March rural livelihood development initiatives in rural and urban 2013. These have been put together to get at a macro picture. areas, banks have provided small loans to a number of people 3. Annual Report of the Ministry of MSME 2013–14. for their livelihoods and, in the process, gained considerable 4. While the number of loans at 250 million has been estimated, experience. Livelihood finance for the vulnerable is not a it is difficult to conclude that all these loans were actually natural response for many banks. It has to be consciously applied for income-generating purposes. Given the fungibility adopted as a business objective, and this is what the priority of money and the numerous demands—all of which are not for income generation—it is assumed that a part of the loans sector mandate seeks to achieve. While fulfilling the is used for consumption. The analysis here examines the ‘best regulatory mandate to make small livelihood loans, banks case scenario’ of all loans having been applied for a livelihood, can do it meaningfully. The agent banking model permitted income-generating purpose. by RBI provides the scope for testing out low-cost delivery 5. Where input-intensive agriculture is adopted with both high models with high levels of efficiency. The ability of banks to investment and production costs, the ratio will be lower. The serve small customers will improve if good use of business traditional plane of farming with low external inputs has a correspondents (BC) agents is made with due safeguards. The much higher input to output multiple. 6. As per the World Bank, the private sector credit to GDP pricing freedom given to banks can and should be exercised ratio has been gradually increasing in India over the years and (as has been demonstrated by HDFC Bank) sensibly in order reached a level of about 52 per cent. Several other countries to make the agent banking model viable for all. have higher ratios. China, for instance, has a credit to GDP Product and process redesign, partnering other ratio of more than 130 per cent. organizations in the field in marketing and servicing loans, 7. Cost of Delivering Rural Credit in India, Anant Sahasranaman improving staff skill sets, adoption of value chain based and Deepti George, IFMR, April 2013. approaches to finance, and development of comprehensive 8. Assessing Effectiveness of Small Borrowing in India, Rajesh risk management frameworks that include borrowers risks Shukla, P.K. Ghosh, and Rachna Sharma, National Council of Applied Economic Research, 2011. apart from banks risks are some aspects of future work. 9. Status of Microfinance 2008 to 2013, NABARD. New institutional options such as NABFINS, KGFS, and 10. www.hihindia.org; The numbers are validated by M-CRIL in ADFT have shown that flexibility has a large role to play its independent study. in livelihood finance, especially for groups. For financing small-scale livelihoods, smaller and local institutions might be better equipped. The completion of ongoing REFERENCES policy formulation exercises on small banks is eagerly ACCESS Development Services. State of the Sector Microfinance awaited in the sector. The state should play a facilitating India 2008 to 2013, New Delhi. role that would make livelihoods finance ready. The state Government of India. 2013. Price Policy for Kharif Crops Marketing is better off keeping away from trying to influence banks Season 2012–13, Commission of Agricultural Costs and on credit flow and costs, but engaging in providing the Prices right environment for the livelihoods to grow. Livelihood –––. State of Indian Agriculture 2011–12, Ministry of Agriculture.

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–––. 2011. Report of the Committee on Comprehensive Review of Narayanamurthy, A. 2013. ‘Profitability in Crops Cultivation in Small Savings Fund. India: Some Evidence from Cost of Cultivation Survey Data’, –––. Annual Report, 2011−12, 2012–13, 2013−14. Ministry of Indian Journal of Agricultural Economics. Finance. Reserve Bank of India. 2014. The Committee on Comprehensive Gulati, Ashok and Surbhi Jain. 2011. ‘Pricing Crisis in Cotton’, Financial Services for Small Businesses and Low Income Discussion Paper, Commission on Agricultural Costs and Households. Prices, Government of India. –––. Report of the Trend and Progress of Banking, 2009, 2010, Murthy, R.V. Ramana and Rekha Misra. 2012. ‘Pricing of Paddy: 2011, 2012, 2013. A Case Study of Andhra Pradesh’, University of Hyderabad –––. Annual Report, several years and DEAP, RBI. Sadhan. 2012. Bharat Microfinance Quick Report 2012, New NABARD. Status of Microfinance, 2008, 2009, 2010, 2011, 2012, Delhi: Sadhan. 2013. Srinivasan, N. 2014. Summary Report on State of Rural Finance, –––. Annual Report, several years. GIZ.

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Manas Ratha

It goes without saying that business benefits as more well-being of the poor, while serving the short- and long- people earn higher levels of income, so they can buy term goals of companies. services and products from businesses. C.K. Prahlad’s Helping people to earn a level of income that enables seminal book Fortune at the Base of the Pyramid (2004) them to enter the market and buy the products and focused on the business opportunity in serving poor services they need should sit at the heart of economic customers. Corporate India can either wait for wealth development and the social sector. Over time, it reduces to increase and more consumers to enter the market or dependence of the poor on government programmes proactively help raise the income of poor Indians who and subsidies and builds a stronger economy and can become consumers more quickly. nation. Over 800 million Indians survive on an Corporate Social Responsibility (CSR), recently made income of less than Rs 30 per day—they cannot be mandatory by the Companies Act, 2013, can be driven meaningful consumers at such incomes, even though as by altruistic or moral inclination, or by some level of self- a group they represent a significant chunk of consumer interest on the part of the corporate. Usually, it is some consumption. combination of both that results in the most sustainable This chapter argues that while companies should and highest quality CSR programmes. CSR in India has continue supporting a wide range of important causes, traditionally focused on education, healthcare, sanitation, a sharper focus on promoting livelihoods for the poor, culture, environment, and a host of other worthwhile and both rural and urban, is better aligned with the abilities important causes. By focusing on improving livelihoods, of companies and is more likely to create a sustainable however, it becomes a perfect opportunity for companies improvement in the quality of life of the poor in the to achieve two goals simultaneously—improve the long term.

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WHAT EXACTLY IS ‘LIVELIHOOD’? sustainability of society, and create economic opportunity as incomes and investment capacity of the poor rise. Essentially, livelihood is a set of assets and activities Companies are fundamentally in the business of that helps a person, family, or community to secure the creating livelihoods—by employing staff and workers, basic necessities of life—food, water, shelter, clothing, creating opportunities for suppliers and vendor/channel healthcare, and energy. Central to this is the ability of the partners, and in various other ways; companies are by far person or family to earn the income required to secure the largest employers and thus create livelihoods for all these basic necessities—in the absence of income, there is these people and their families. ongoing dependence on government subsidies or charity, CSR, however, can help corporate India create and both which can be unpredictable. improve livelihoods for a larger section of society that is The concept of ‘sustainable livelihoods’ (SL) was first unable to benefit from the opportunities that companies introduced by the United Nations’ Brundtland World create. The unorganized sector in particular, which Commission on Environment and Development in 1987 in employs over 450 million people and is often a supplier its report, ‘Our Common Future’. It has come to be defined to or distribution channel for corporates, can benefit by Robert Chambers and Gordon Conway as follows: from intelligent CSR support. A livelihood comprises the capabilities, assets and activities required for a means of living: a livelihood is sustainable which can cope with and recover from stress and shocks, maintain WHAT IS CORPORATE SOCIAL or enhance its capabilities and assets, and provide sustainable RESPONSIBILITY? livelihood opportunities for the next generation; and which contributes net benefits to other livelihoods at the local and The notion that companies benefit from society and global levels and in the short and long term. (Chambers and therefore have an obligation to help society is an old one, Conway 1992) and corporates and entrepreneurs have supported social Thus, the following are key elements of sustainable causes for centuries. Howard R. Bowen coined the term livelihoods: ‘Corporate Social Responsibility’ in 1953. However, it was only in the 1980s that this vague sense of obligation 1. It requires capabilities and assets. towards society started being widely discussed as a clear 2. It should be able to cope with and recover from responsibility, driven in no small part by increasing shocks. Shocks such as severe illness, death, poor anti-corporate activism, government actions to regulate crops, and loss of job can instantaneously push a industries, and backlash against the financial excesses and family into—or deeper into—poverty. Fear of such environmental insensitivity of companies. shocks motivates short-term outlooks, encouraging The first major company to ‘voluntarily’ publish a savings over productive investments in nutrition, social and environmental responsibility was Shell in health, and education, which help to improve 1998, following damaging news through the 1990s incomes and reduce costs in the long term. about its complicity in human rights violations and its 3. It should be sustainable for future generations. decision to destroy a large deep sea oil storage facility 4. It must create net benefits to others at the local and which could have caused wide environmental damage, global level. This is to say it should not destroy public but no impact on the company. Thus, this important resources or deplete natural resources for the benefit CSR milestone was driven more by public relations (PR) of a few, for instance, through pollution or stressing and self-preservation, and CSR has often continued to natural resource supplies. toe a fine line between a genuine drive to improve society, 5. It should create net benefit in the short and long term, and improving the image and reputation of companies. not compromising one for the other. Since the 1970s, business leaders and academicians have Creating livelihoods that meet these criteria can debated the role of the corporate in the context of direct dramatically improve social balances through greater and indirect stakeholders. In 1970s, Milton Friedman inclusion and well-being, enhance environmental argued that the only responsibility of business managers

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is to maximize value (and profits) for shareholders, as any While today globally most people define CSR fairly action to further social good may be done to advance broadly, this chapter will limit CSR to a definition offered personal agendas or promote self-image, which may not by McWilliams et al. (2006), where a firm engages in be the right uses of a company’s capital. Edward Freeman ‘actions that appear to further some social good, beyond (1984), on the other hand, argued that companies have the interests of the firm and that which is required by law.’ several relevant stakeholders beyond the shareholder, While countries have laws about how companies treat the whose interests should be considered because a firm environment, employees, and other groups, CSR means cannot continue to thrive and survive without the support going beyond the interests of the firm and beyond what is of these stakeholders that include employees, customers, required by the law. Practically, however, companies usually suppliers, and communities. Therefore, companies, in seek to derive some benefit from their CSR activities, self-interest, should take into account and act to promote which is not necessarily a bad thing as long as the CSR the interests of all such stakeholders. Donaldson (1990) work primarily addresses and solves the problems it aims further added an ethical dimension, saying managers to, while also delivering benefit to the company. should ‘do the right thing’ without regard to how such As India’s Companies Act, 2013, now mandates decisions affect financial performance. CSR spending for certain companies (see Box 4.1), the CSR, thus, has been defined widely and narrowly. criteria ‘required by law’ may not be relevant in the Depending on viewpoints, it can include various actions a Indian context as CSR activities are now required by company can take that improves the well-being of various law. While this Act defines certain activities that qualify stakeholders within and outside the business, and such as CSR activities, companies should remember that actions may have a positive, neutral, or negative impact their ability to influence society positively may extend on the financial profitability of the company. In all cases, beyond these defined activities and, accordingly, they however, CSR must aim to improve the well-being of should pursue such endeavors even if they do not count society and environment. towards CSR as per the Act. Indeed, one of the risks of

Box 4.1 Companies Act, 2013: Mandatory CSR (Section 135) On 18 December 2012, the Lok Sabha passed the long-awaited Companies Bill, 2013. Following approval by the Rajya Sabha on 8 August 2013 and receiving the assent of the President of India on 29 August 2013, it became the much awaited Companies Act, 2013 (the ‘Act’), replacing the Companies Act, 1956. The Act became operational from 1 April 2014 and introduced Corporate Social Responsibility (CSR) into the Companies Act for the first time.

Section 135 of the Act related to CSR obligations of companies, applies to all companies that in any year have: 1. net profit of at least Rs 5 crore or 2. net worth of at least Rs 500 crore or 3. turnover of at least Rs 1,000 crore. The computation of these figures is as per the profit and loss (P&L) statement of the company and shall not include amounts from overseas branches of the company. This section will apply to Indian subsidiaries of foreign companies.

Companies that are eligible as per above these criteria must: 1. Constitute a board-level CSR Committee: (a) Responsible for creating a CSR policy, designing CSR activities, proposing budgets, and presenting to the Board (b) Also responsible for developing monitoring mechanisms, monitoring programmes, and reporting on implementation (c) Consisting of: (i) For public listed companies: Minimum three members, including an independent director (ii) For public unlisted companies and private companies: Minimum three members but an independent director not required (iii) A private company with only two directors can have a CSR committee with both directors (Continued )

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Box 4.1 (Continued)

2. Establish a CSR policy for the company: (a) Lay down processes, activities, and modalities for executing CSR plans (b) List CSR programmes and projects the company plans to pursue, that are aligned with Schedule VII (see below) (c) Policy must be approved by the board of the company and disclosed on the company’s website and directors’ report 3. Spend at least 2 per cent of the average net profit of the past three years on CSR activities in line with the CSR policy. • Thus for the financial year 2014–15, the approximate spending should be = 2 per cent* (average net profit of financial years 2013–14, 2012–13, and 2011–12). 4. Report on CSR activities at the end of the year as per the prescribed CSR Reporting Framework

Eligible activities: Section VII lays down the following as eligible areas of spending. Any other activity will not qualify towards the computation of mandatory CSR spending, even if it does create social impact. (i) Eradicating hunger, poverty, and malnutrition, promoting preventive healthcare and sanitation, and making available safe drinking water (ii) Promoting education, including special education and employment enhancing vocation skills, especially among children, women, elderly, and the differently-abled, and livelihood enhancement projects (iii) Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres, and such other facilities for senior citizens; and measures for reducing inequalities faced by socially and economically backward groups (iv) Reducing child mortality and improving maternal health (v) Combating HIV/AIDS, malaria, and other diseases, and providing preventive healthcare including assistance to differently- abled persons (vi) Ensuring environmental sustainability, protection of flora and fauna, conservation of natural resources and maintaining quality of soil, air and water, including promoting renewable energy solutions (vii) Improving employability through vocational skills (viii) Rural development projects (ix) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and welfare of the scheduled castes, scheduled tribes, other backward classes, minorities, and women Thus, the eligible activities are wide, allowing companies to pursue socially impactful activities that align with their priorities. The following, however, will not be counted towards CSR spending: (i) Contributions to political parties (ii) Spending on communities or activities outside India (iii) Activities that exclusively benefit employees, their families, or contract workers of the company (iv) One-off events such as sponsoring marathons or events, and television advertising or programmes that are not aligned with a clear programme or project

Other important points to note: (i) CSR activities can be revenue generating, but that revenue cannot be counted as part of business profit. Any surplus generated by CSR activities must be spent on future CSR activities. (ii) CSR projects should prioritize communities and areas near where the company operates. This cannot only earn the company goodwill, but the company can use its local knowledge, staff, and resource to manage projects effectively. (iii) Salaries paid to and expenses incurred by the CSR staff as well as expenses incurred during volunteer for social activities (proportionate to time spent on volunteering activities) can be included as part of CSR budget, though it is not clear yet how these will be calculated or whether any restrictions will be applied. (Continued )

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Box 4.1 (Continued) (iv) Five per cent of the CSR budget can be allocated to skills and capacity building of the company’s own CSR staff and staff of implementation partners. (v) Companies that do not meet the aforementioned spending levels need to explain reasons in their Annual Report.

Implementation of CSR programmes: Companies have four primary ways to implement their programmes. Each approach has its own challenges, requirements, and benefits, and companies should identify the best method based on their CSR plans. Companies can also have different approaches for different projects, based on various considerations. 1. Directly on their own 2. Setting up their own non-profit foundation to implement programmes 3. Through independent, registered non-profit organizations 4. Pooling resources with other companies that are doing similar CSR activities

No. Approach Explanation Pros Challenges 1. Directly on The company will, • Flexibility—all company resources • Clear monitoring, accountability, and their own through its own staff and can be used for CSR as and when responsibility frameworks needed to P&L, spend on CSR needed ensure prioritization in execution— activities • For certain project requirements, else CSR can remain overshadowed and while reporting, the company can engage vendors, by regular business allocate these expenses to service providers, and professional the CSR budget expertise 2. Setting up their This foundation can • More flexibility in spending CSR • Cumbersome to manage regulations own non-profit undertake projects aligned budgets as such foundations can for such entities organization with the company’s CSR carry surplus from year to year • As it has own resources, financials, or foundations policy and will be funded (though some ambiguity) etc., scrutiny and transparency may to implement by the company • Foundation can raise external funds be greater than in previous option programmes also to increase size of programme • Foundation can independently build appropriate team, and have policies and culture suitable to achieving its goals 3. Through The company can grant • Company does not build much • Need to properly select and oversee independent, funds to any established overheads or staff—relying on partner organizations to ensure registered registered Trust, Society, partner organizations to manage proper compliance and quality of non-profit or Section 8 (earlier called and run programmes—so can work organizations Section 25) company build programmes faster with • Company would not have deep that has a track record lesser chance of failure control over day-to-day functioning of at least three years • This lean structure can create of programmes—may lose some in activities similar to flexibility in designing programmes benefits of its CSR spending the CSR work being as it can select the best non-profits • Non-profits: See Box 4.2. undertaken to work with, and can also adapt and change strategies if needed by switching partners—not easy if they need to rebuild team with different skills

(Continued )

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Box 4.1 (Continued)

No. Approach Explanation Pros Challenges 4. Pooling All the companies thus • Companies can leverage each • Sharing credit for impact created resources collaborating will have to other’s expertise and CSR can be contentious with other report separately on their networks to create scale and • Parting ways, if any company companies CSR activities efficiencies changes priorities, can deeply affect • Companies often understand the programme and beneficiaries each other’s priorities and language, making collaboration relatively easy if overall goals are clearly aligned

Risks of Section 135: While this path-breaking regulation can significantly increase both the quantum and quality of investments in social infrastructure and activities, there are certain risks posed by making CSR compulsory. 1. Bureaucracy and procedures will slow down CSR activities and impair quality: Many companies that have had active CSR programmes are pausing to ensure they are complying with all the new requirements including policies and Board committees. This should be a temporary effect. Longer term, too much focus on adhering to policies and reporting systems may reduce flexibility for companies to adapt their programmes and take the most effective course towards solving solutions. 2. Moral Conviction replaced by legal obligation: In the past, managers’ moral leanings and some business interests drove much of CSR activities. By creating a legal obligation, at least some CSR activities will become tick-the-box exercises which can have unintended consequences (poorly conceived and implemented social problems can leave beneficiaries worse off), tarnish the credibility of CSR, and perhaps even elicit future government regulation that harm corporate India’s interests and abilities, as many people see this section as a way for the government to (unfairly) share or transfer the burden of development with corporates. 3. Companies often do not have expertise to make social interventions: Many companies have long histories of CSR and running foundations and therefore have the experience of investing significant amounts into social programmes. Companies that do not, feeling the need to make large financial commitments quickly, may have unreasonable plans or take up the time of non-profit partners and create conflicts with unreasonable expectations. This can create significant mistrust, waste resources, and have longer-term consequences that weaken the social sector. Many companies are realizing that special skills and understanding is required to run CSR effectively. It is not the same as running a business, and simply deploying business managers to oversee CSR does not always work. When needed, companies must use advisors and consultants, and hire staff with relevant experience to develop and implement social programmes. 4. Narrowing the ambit of CSR: Some activities, particularly around human rights’ advocacy, improving governance and justice, and sustainability projects for the company, are not covered by Section VII. Companies that have been supporting such causes may move away and support only causes included in Section VII to meet their financial obligation, thereby leaving many important causes and non-profit organizations without adequate funding. It is therefore important for companies to understand that CSR goes beyond the Companies Act, and we come back to Donaldson (1990) who asked managers to do the ‘right thing’. 5. Corruption: Companies may be coerced into, or may find funding non-profit organizations that are essentially fronts for political or underworld interests, an easy way to cover the tracks of illicit payments. Political favours may also be granted while urging companies to invest CSR funds in certain constituencies. Audits must be required to ensure that CSR policies are specific and focused, and that programmes adhere to these policies, to ensure that CSR funds are not diverted for such reasons. Source: Overview of Section 135 provided by Samhita Social Ventures.

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Box 4.2 Questions Non-profit Organizations should ask about CSR While non-profit organizations eagerly wait for CSR spending to grow and are increasingly orienting their fundraising efforts towards corporate India, they would be wise to learn from peers who have both succeeded and struggled to work with companies. Here are some common challenges, particularly with companies that do not have clear CSR plans and processes or dedicated CSR staff: 1. Decision-making can be slow and the process unclear: Companies sometimes struggle to balance the demands of various managers and departments from CSR projects, leading to delays and flip-flops. NGOs are asked to urgently create proposals or make presentations, and then no decisions are taken for weeks. NGOs should ask about how decisions are taken and who are the key decision-makers, and inquire about typical timelines and the process the company follows, to ensure it invests the right amount of time and is not frustrated through the process. 2. Corporate demands increase: Once again, lack of experience and processes leads companies to enter into grant and process agreements with NGOs without clear reporting systems or goals. As different corporate departments enter the scenario, they may make new requests of the NGO. Communication and PR teams often require additional publicity materials, visibility, or request site visits and photo shoots, accounting and legal teams will conduct extensive due diligence or demand formal impact assessment reports, and HR may try to find volunteering opportunities. Smaller NGOs, in particular, may find this onerous, so it is worthwhile to ensure that the CSR team is engaging all departments within the company from early in the process. 3. Visibility and credit: Often, once a project is underway, a company realizes it is not getting the amount of visibility that it had expected. Clear understandings between the communications team and the NGO can prevent much heartburn later on. The NGO should also clearly understand all branding guidelines of the company to ensure compliance. 4. Renewal of agreements: Many companies sign one-year agreements with the assurance that it will be extended if work proceeds smoothly. Sometimes, however, change of personnel, priorities, or the funding situation causes last minute changes and shocks to the NGO. NGOs should be in dialogue about renewal well before the end date and speak directly with decision-makers in this regard as early as possible. 5. Understand sensitivities: Like any organization, each company may be sensitive to certain actions or behaviours of their partners. Some may want to be aware of any bad press related to NGOs they fund; some may care about the NGO keeping them informed of new programmes, partnerships, and strategic developments. Some may insist that the NGO not accept funding from a competitor. Understanding these sensitivities builds a strong relationship that is more likely to endure. In short, it is important for NGOs to understand a corporate funder and do their due diligence to ensure expectations are met on both sides.

the Act is that excluded activities which are nonetheless (MNCs), and state-owned enterprises play an important important for society will stop receiving attention and role in rural development, education, sanitation, health funding from corporates who may have supported such services, improving agriculture and livelihoods, etc. activities earlier. Much of the excitement is around the fact that about 16,000 companies in India that qualify under the criteria laid down in the Act (see Box 4.1) will need to contribute THE STATE OF INDIAN CSR about Rs 15,000−22,000 (USD 2.5−3.6 billion) each year to AND COMPANIES ACT, 2013 the social sector. However, the following three factors affect exactly how much capital will flow into the social sector: Section 135 of the new Indian Companies Act, 2013, 1. While no one has an exact figure due to lack of (hereafter, the Act) has mandated CSR spending by Indian current reporting norms on CSR, these companies companies starting in the financial year 2014–15. While may already be contributing about 30−40 per cent the new Companies Act is a milestone in enshrining the of this amount towards social, religious, and cultural social responsibilities of the corporate sector, one must not causes, or as much as Rs 7,000−8,000 crore. Often, forget that India Inc. does have a rich history of supporting promoters may make personal contributions to social and national development. Many old business charitable causes, which may now be routed through houses, newer companies, multinational companies the company to meet regulatory needs.

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No Info, 16 >2%, 16 Adani Enterprises 5.3% Jindal Steel and power 5.3% Spent Despite Adani Power 4.9% Losses, 3 Reliance Power 3.8% National Aluminium Company 3.4% Ambuja Cements 3.2% Nestle India 3.0% 1–2%, 28 Hindustan Unilever 2.9% <0.5%, 15 Tata Steel 2.8% Adani Ports 2.7% Ultratech Cements 2.6% 0.5–1%, 22 IDFC 2.4% Colgate-Palmolive 2.3% Source:F Partnersigure 4.1 for ChangeCSR as (www.picindia.org).percentage of profit in FY 2013: Top 100 companies ICICI Bank 2.2% Jaiprakash Associates 2.2% Source: Partners for Change (www.picindia.org). Hindustan Copper 2.2% Bajaj Auto 1.9% Research by Partners in Change (www.picindia.org) Dr. Reddy’s Laboratories 1.9% estimated that 84 of the top 100 companies in India ACC 1.9% (by revenue, listed on Bombay Stock Exchange [BSE]) Reliance Industries 1.9% whose CSR information was available would need to GAIL 1.9% spend Rs 4,276 crore on CSR, while in FY 2012–13, Larsen & Toubro 1.7% they actually already spent Rs 2,724 crore, or 64 per Grasim Industries 1.7% cent of the mandated amount. Therefore, additional LIC Housing Finance 1.6% spending will be smaller than expected by many. Of ITC 1.6% these 84 companies, 16 (19 per cent) already spend IndusInd Bank 1.6% more than 2 per cent of profits on CSR, while 28 MMTC 1.6% (33 per cent) spend over 1 per cent and are close to the Hindalco Industries 1.4% required spending levels as per the Act. United Breweries 1.4% 2. Some of the spending by companies towards religious, Oil India Limited 1.4% political, or employee engagement activities will be SourceFigure: Partners 4.2 for30 Changecompanies (www.picindia.org). with CSR in FY 2013 as highest disallowed under the definition of CSR in the Act. percentage of average net profit of prior three years Therefore, companies may need to re-prioritize their Source: Partners for Change (www.picindia.org). social investments, which can have an adverse impact on specific causes and institutions that currently get spent wisely, with adequate planning, due diligence and donations from companies. monitoring. 3. Perhaps most importantly, companies can delay It is also useful to remember that CSR is still tiny deploying funds into social activities; for example, compared with the USD 75 billion (Rs 4,50,000 crore) by setting up and capitalizing foundations or simply in 2013–14 that the Indian government (including explaining why they were unable to do so. Similarly, states) spent on social services (see Figure 4.3). Thus, employee volunteering activities will count towards CSR a criticism of the Act that the government is trying to budgets, but the actual impact on social issues is unclear. transfer responsibility for social development on to the Non-profit organizations that are lining up expecting corporate sector holds little water. to raise significant amounts of capital from CSR may have This is, however, an opportunity to apply the financial, a wait ahead of them. Nonetheless, the potential for CSR human, and technological resources of India Inc. towards to influence outcomes can be significant if these funds are addressing human and environmental development.

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Rural Water and Figure 4.4 indicates causes supported by corporates. Education: Sanitation: $2.5Bn (7%) $10.9Bn (29%) Not surprisingly, education and health are leading areas of focus as companies frequently fund equipment Rural Development: and operating costs of schools, colleges, and hospitals, $13.4Bn (36%) training of staff, free treatments for deserving patients, etc. It is also relatively easy to get visibility for such contributions. Supporting sustainable livelihoods can fall under multiple categories including vocational skills, women’s empowerment, agriculture, water, and infrastructure and finance, and may add to about 20 per cent. Many other activities such as healthcare, education, and community development will support Agriculture: Health: improving livelihoods. $4.5Bn (12%) $6.2Bn (17%) Figure 4.3 Central government spending on social BENEFITS OF CSR TO A COMPANY services, 2013−14 Most people agree that CSR activities should create some When combined with ongoing efforts of the government direct or indirect benefit to the company. Such benefits and the social/non-profit sector, CSR may achieve (i) create deeper interest and enthusiasm for the activities, significantly more than its relatively small budget may within and outside the firm, and (ii) make CSR more indicate, as this chapter later outlines. likely to be sustained because it is easier to discontinue

Education (15%) Health (14%) Addictions (1%) Elderly (1%)

Community Art/Culture (2%) Development (10%) HIV (3%)

Finance (3%)

Children (3%) Environment (9%)

Disability (4%)

Water (8%) Infrastructure (5%)

Agriculture (5%) Women Empowerment (7%) Sports (5%) Vocational Education (5%)

Source: CSRidentity.com; CompanyFigure Annual 4.4 Reports.CSR spending of top 100 BSE-listed companies Source: CSRidentity.com; company Annual Reports.

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something that creates no benefits at all, than something service its products, and a vibrant ecosystem reduces that creates tangible benefits. Some of these benefits are costs of the business. CSR can help establish new summarized here. micro-enterprises that could be vendors or training people on entrepreneurship so they may sell 1. Brand image and customer goodwill: Cluttered and products of the company as Hindustan Unilever has hyperactive media and communications have made done with Project Shakti in rural India. Companies it increasingly difficult for companies to distinguish are yet to develop the potential to help CSR on this their advertising and brand-building efforts from front. those of competitors. Good quality CSR work that ITC’s efforts in watershed development and transforms lives can help build brand value, customer improving livestock and animal husbandry has loyalty, and competitive advantage. All media research improved relationships with farming communities indicates that new generations of consumers seek which can benefit its growing foods business. more human values from the brands they consume, 4. Improve relations with local communities: Business including compassion, understanding, respect, and interests often do place companies in conflict with sensitivity. local communities, especially when they use local CSR done purely for public relations purposes will natural resources or affect the social fabric by creating not be effective as people can see through a gimmick, employment or benefits for certain people. Even but genuine, sustained high-quality work can earn where there is no conflict, CSR can help establish great rewards. Indeed, it is a lost opportunity that healthier relationships where communities are more CSR efforts are not highlighted more prominently in supportive of the company’s plans and activities. corporate communication and advertising as a way At a minimum, this can increase the well-being of to inform the world about social challenges and also company staff and even lower costs of security and build goodwill for the company. maintenance. At the other end, local communities Companies should decide which target audience that champion a company can improve the company’s they wish to connect with through CSR, and access to raw materials, labour, vendors, and markets, accordingly create plans. Hindustan Unilever’s creating significant economic value. ‘Swasthya Chetna’ campaign has educated 110 As Ambuja Cement found, communities that million people on how hand washing leads to benefitted from long-term work of Ambuja Cement improved health—thus building awareness that Foundation (ACF) helped the company to successfully can save lives and helping build Lifebuoy’s market get expansion permissions from the government. share. When Ambuja Cement expanded to new areas, these 2. Deepen understanding of local realities: Engaging communities helped convince people who opposed with communities to understand and provide their the arrival of the company by explaining how ACF basic needs gives an in-depth and ringside view had improved their lives. of their lives, challenges, family structure, and 5. Happier employees: The role CSR can play in communal and political forces. CSR can thus help improving a company’s reputation among its build consumer insight, often in ways that surveys own employees and raising their motivation is or market research studies do not capture. Going a perhaps underrated. Many companies have found step further, companies such as Godrej and General that genuine, consistent CSR efforts help reduce Electric have partnered with social enterprises for turnover, motivate employees to recommend job consumer analysis, product development, and field opportunities at the company to friends and family, testing products very successfully, at a fraction of the improve confidence of sales teams when speaking cost and with higher success rates than traditional with prospective clients, and encourage employees approaches. to care more about their work. 3. Develop the value chain and ecosystem: Every business In service businesses, or where employees have needs an ecosystem to develop, produce, sell, and extensive interactions with customers, such an

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attitude of the workforce can significantly improve All in all, we can see how a genuine, robust, and high- the customer experience and brand value. quality CSR programme can have direct and tangible The risk is that companies that are inconsistent benefits for society and companies. However, CSR can in CSR, or undertake it notionally or for PR only enhance the sheen created by responsible and honest purposes only, will find employee backlash that businesses, not cover up the damage done by unscrupulous can be damaging internally to its culture and ones. Those in the former category will find that the productivity and externally to customer service and incremental value of good CSR far outweighs the cost— brand perception. especially now that a certain level of spending is mandated. Merrill Lynch advertises its environmental Recognizing the value in CSR can make the difference efforts to prospective employees. Capgemini makes between taking it seriously and doing it well or not. grants to social causes on behalf of employees The best example in India may be the TATA Group and even people who apply for jobs. 51 per cent that has combined ethical business practices with deep of Indian employees care about CSR causes their social responsibility and reaps rewards in all the ways company supports, while Hewitt has found that mentioned. as many as 45 per cent of employees would take a 15 per cent paycut to work for a company that created social and environmental impact. Research HOW COMPANIES CAN BENEFIT BY by Aon Consulting showed that even back in 2005 FOCUSING THEIR CSR ON LIVELIHOODS in the US, CSR was the third most important driver of employee engagement and influenced The poor are defined by the lack of income to meet retention—leading to huge savings and productivity their essential needs. Therefore, their greatest need is improvements. to increase income. Therefore, improving incomes of 6. Support from government: Many governments, the poor and creating sustainable livelihoods has wide- including in India, view business with an eye of ranging benefits, the most important being that the poor suspicion, expecting businesses to act always out can start to take charge of their own lives and decide what of pure self-interest with scarce care for the effect services they want to avail of. They can also invest in of their decisions and actions. By executing good themselves and their future generations, thus entering the quality CSR and highlighting these to governments, marketplace where they can buy the services they need, companies can differentiate themselves, justify their rather than relying on charity or the government for their requests and demands, and make themselves more basic requirements. desirable citizens. Environmental sustainability and As mentioned earlier, CSR plays an important role in social development are high on our government’s providing basic services like healthcare and education, agenda, and companies that assist in meeting goals thereby adding to the government’s infrastructure for and targets are more likely to be looked upon serving the poor. Businesses are actually best placed to favourably. impact and improve livelihoods as they are closest to CSR activities that raise people above the poverty markets, manage vast supply and value chains, employ line also lighten the governments’ financial burdens large numbers of people, and have deep experience and and are considered favourably. resources that are most relevant to developing sustainable 7. Economic development that creates new customers: By livelihoods. providing basic services and infrastructure, whether Table 4.1 compares the benefits to companies from it is healthcare, education, livelihoods, or sanitation, different types of CSR activities. CSR does help accelerate economic development, and This shows that programmes on livelihoods, if executed this is good for business in the long term. However, well, can have the greatest benefit for companies. One focused CSR can have transformative impact at local challenge, however, is that livelihood programmes have levels, creating quicker benefits for companies in the to be tailored to local conditions, resources, challenges, medium term. and traditions, which can make them more tedious to

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Table 4.1 Benefits of CSR activities to companies A. Corporate Philanthropy (strategic or otherwise): Education Healthcare Livelihoods Some direct benefit to company 1. Brand image and H H H goodwill B. Shared Value: Benefits society and creates 2. Deepen significant direct benefit for the company understanding of L M H local realities C. Sustainability: Optimize resource utilization to 3. Develop the value benefit the company and environment - - H chain and ecosystem 4. Improve relations with local M H H Corporate Philanthropy communities Traditional corporate philanthropy, the way in which 5. Happier employees H H H companies supported social causes, basically involves 6. Support from M H H donating money to non-profit organizations and sometimes government the time of its employees towards ‘good’ causes. It was 7. Economic relatively unplanned and non-strategic, in that companies development that M M H creates new customers allocate a budget and then make donations based on proposals and requests received from non-profit organizations or Notes: H = High benefit to company; M = Medium benefit to company; L= Low benefit to company. individuals seeking financial support in the face of accidents or crisis. Many larger companies effectively created their design and deliver effectively, compared with education own non-profit organization to run programmes, but, or healthcare which can be more standardized and with few exceptions, these are usually not managed with replicable. This also makes interventions more expensive the same level of professionalism and focus as the business. and less scalable, and these factors should be built into Even though companies may focus on specific areas such as the overall CSR plans and timelines. rural development, livelihoods, education, healthcare, and natural disasters, there is no overall mission or long-term goals guiding how such donations are made and, therefore, APPROACHES TO CSR the process tends to be reactive and based on relationships.

While early CSR was essentially corporate philanthropy (donations, charity, gifts to people in urgent need, relief Strategic Philanthropy work, etc.), the concept has evolved to include various An approach that has evolved since the late 1990s, corporate activities and business decisions that have strategic philanthropy takes a more thoughtful, planned, social and environmental impact. and engaged approach towards philanthropy in order In recent years, concepts or methodologies such as to achieve certain predetermined goals. These goals can strategic philanthropy, venture philanthropy, shared include objectives of the corporate as well. There are a value, triple bottomline, and sustainability have few steps to be followed, depending on how strategic the entered the lexicon, and each concept has lessons and company wants to be in its philanthropy. methodologies for companies seeking to pursue high- quality CSR. A company must select what is right for Developing a Strategic Corporate itself. Philanthropy Programme Broadly speaking, today there three forms in which CSR is executed, as mentioned subsequently. These 1. Internal goals of CSR: The company must have a clear approaches can be complementary to each other and, idea, or at least a shortlist of long-term priorities, of what indeed, most if not all companies can have a portfolio of benefits it is seeking for itself from its CSR programme. activities spanning across the three. Some companies may decide that understanding certain

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local communities is more important, while others may 4. Understanding the identified focus issues: Once the prioritize employee satisfaction. A company may select company has identified areas for intervention, it should any combination of the benefits of CSR identified invest some time (and funds) to fully understand the earlier as its goals. Unless the CSR goals are discussed problems and underlying drivers, as well as what kinds openly and agreed upon by key decision-makers across of solutions and interventions can be successful, to the company, there will always be disagreements when make informed decisions while approving grants or programmes are designed and implemented; setting making implementation plans. Just as it is helpful clear objectives and priorities upfront can prevent to engage domain experts, consultants, and advisors tensions and failure later on. when developing a new product or entering a new 2. Estimated financial allocation: While the budget market, using the right advisors and researchers required will depend on various factors, it is useful to can help develop better CSR programmes that are have a sense of the budget, or at least a range, for the more effective and likely to be successful. Reaching next few years. Strategic philanthropy needs long- out to corporate and family foundations that run term vision and hence long-term capital commitment programmes or grant funds in similar areas can also is important for planning programmes. be very useful in understanding the ground realities of 3. Selecting CSR activities: To be strategic, one needs to running philanthropic activities. create a plan, and answering the following questions 5. Implementation plan and setting goals: As discussed can help to start building one. Answers should be later, a company can implement its CSR plans in based on the history and culture of the company, various ways—by setting up its own team to run its products and client base, core capabilities, and programmes or giving grants to other non-profit areas of operations, and should align with what the organizations. Thus, an implementation roadmap company wants to achieve through its philanthropic laying out the various options and preferences should activities. be created at this stage, which can be revised in case A top–down process to identify a few broad areas of challenges or roadblocks (like not being able to and options is usually most efficient; so, bringing in recruit the right team to implement programmes on senior management, which has to commit resources its own or not finding non-profit organizations that and long-term support, is advisable. Soliciting have the right skill sets). bottom–up feedback helps fine-tune programmes Short-term and long-term targets can be set at this such that there is broad buy-in, which will help in stage, in consultation with implementation partners or volunteering activities, if any. teams, to track progress. Setting interim and final targets (a) Sector/issue: A company may choose one or more helps all partners (the company, implementing non- focus areas depending on its CSR objectives and profit organization, local communities, government, business activities that make it familiar with the etc.) to plan activities, track progress, and course-correct, issue. as needed. (b) Demographics to impact: What population Multi-year financial commitments, subject to meet- group will benefit; for example, youth, children, ing targets, are very important, as single-year commit- elderly, adolescent girls. The company may chose ments create uncertainty that reduces effectiveness and a demographic that is understands well, such as a prevents deeper investments into programmes. section of its customers or target audience. 6. Monitoring and evaluating programmes periodically (c) Location and geography: Implementing and making adjustments along the way until the programmes in areas where the company goals are met (or revised). has business activities is likely to create more Generally speaking, the key challenges faced by companies benefits for the company. Local knowledge can include: help design better programmes, while having staff and resources can help create volunteering (a) prioritizing from a range of philanthropic opportunities and better oversight. opportunities to focus on a few;

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(b) identifying qualified and interested staff members eye that the primary beneficiary of CSR is society and the (internally or externally) who can ensure company comes second, rather than the other way around. programmes are managed well, while creating the With strategy and CSR closely intertwined, the focus can desired benefits for the company; subtly shift. While this may not be a bad thing as society (c) impact assessment to assess whether funds were well continues to benefit, it does go against the spirit of CSR as spent or not; and espoused by McWilliams (2006) and by the Act. (d) sustaining long-term focus to achieve set targets, The tight integration of CSR and business objectives and as changes in personnel, financial performance of processes makes shared value projects relatively complex business, and experiences with partner organizations to develop and resource-intensive to implement. Thus, can cause frequent changes in focus. such projects must be developed with a long-term vision and goals as switching plans frequently can undermine This entire process requires considerable work and focus business confidence and performance. The cost of failed and, therefore, the company needs staff, advisors, and shared value programmes is much higher than if strategic consultants dedicated to developing and managing such philanthropic projects fail, as those are disconnected from activities. Advisory organizations such as Dasra (www. the company’s core business and operations. dasra.org), Samhita (www.samhita.org), GiveIndia (www. giveindia.org), and Charities Aid Foundation India (CAF; www.cafindia.org) can help companies in this process. Developing a Shared Value Programme

Creating Shared Value 1. Identify present and future business challenges and risks whose origins and solutions lie largely outside Shared value is a concept developed by Michael Porter at the boundaries of the company. For example, Harvard Business School and Mark Kramer at Harvard’s qualified labour pool for the company, vendors who Kennedy School of Government. According to them, ‘the can provide the kinds of products the company needs, prevailing approaches to CSR are so disconnected from environmental changes that can impact operations, business and strategy as to obscure many of the greatest etc., are challenges where companies have to work opportunities for companies to benefit society’ (Porter with other actors to develop solutions. These should and Kramer 2006). be medium- or long-term problems, and solving it Creating shared value means seeing social problems as should create significant business value. business opportunities that have not yet been addressed. 2. Identify and prioritize those challenges that the From the CSR perspective, one can align CSR goals, company can address. Nestle, for example, identified social needs, and business strategies, thereby ensuring that that stable agricultural supply chains are critical to CSR delivers tangible value to the company, while also its operations, but dwindling water supplies in many integrating CSR activities into the company’s core business areas where it sources products can disrupt supply processes. Thus, the company can use all its resources and chains. It thus identified water use as a focus area. expertise—people, technology, facilities, products, etc.— Adidas identified that not using shoes puts the poor to implement CSR. Such alignment is likely to create the at risk for deadly infections through cuts in the maximum benefit for society and companies. feet, while also affecting productivity and comfort. Shared value has significant merits and, globally, It partnered with Grameen Bank in Bangladesh many companies have designed successful programmes to produce low cost, good quality shoes that are using this approach. One criticism is that shared value affordable for the poor and protect them from disease. is no different from business strategy as usual, aimed at 3. Estimate resources required to address the challenge uncovering and exploiting new opportunities closer to the and set targets. Here, the company has to understand base of the pyramid. In order to be treated as a process the issue in depth and evaluate what capital, manpower, for social development, shared value projects must create and other resources will be required. While final plans significantly more benefit for external stakeholders than will be developed after more detailed assessment, setting for the company itself. One must also keep a watchful some targets at this stage will help focus discussions.

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This process requires extensive internal Shakti Ammas, by imparting skills that are transferable brainstorming as a broad range of teams, departments, and enabling them to become micro-entrepreneurs, and divisions may be involved, given that CSR earning an average of Rs 1,000 per month, serving becomes closely aligned with company operations 165,000 villages and four million households. The and strategy. The case study of Godrej’s Good and programme has been extended to include men called Green programme highlights this important aspect. Shaktimaans. 4. Develop an execution plan and set goals. Like in The Godrej Good and Green programme integrates the case with strategic philanthropy, a company has shared value and sustainability—a case study is in the various options such as setting up its own team to Appendix—and aims to train and retain 1 million youth run programmes or giving grants to other non-profit for jobs in construction, manufacturing, agri processing, organizations. Regardless, a strong core team is health, and beauty—all areas where the company has required to coordinate activities within the company business activities. and with external partners and stakeholders. Nestle’s dairy factory in Moga, Punjab, is amongst its Like any large project, strong management, largest globally, collecting milk from 1,10,000 farmers setting achievable and realistic interim goals, and every day. Since opening in 1961, the company has not robust monitoring and reporting mechanisms to key only invested in village-level infrastructure to collect, decision-makers are all critical for a successful shared store, and chill milk to improve its supply chain but also value project. A large initiative may have sub-projects provided ancillary support to farmers such as veterinary that run in parallel, and control and responsibility services, artificial insemination centres, and educational is often initially concentrated in the shared value tours to boost productivity. The company also provided project team, and gradually pushed on to business financial support for farmers to buy milking machines managers as the programme takes shape and initial and other devices to improve their business. Together, bugs are resolved. these initiatives significantly improved the incomes 5. Monitoring and evaluating programmes periodically of its milk suppliers. Over the years, the company has and making adjustments along the way until the gone further by investing in agricultural productivity goals are met (or revised). The evaluation process is and farm yields, sanitation, water, health, and education more complex as it includes business performance to transform Moga into a prosperous milk district and metrics and engages a cross-section of management industrial center. that holds current or future responsibility for meeting Samhita Social Ventures (www.samhita.org) and FSG programme targets. (www.fsg.org) are well-known for helping companies craft and implement shared value projects. Perhaps the greatest challenge lies in:

(a) creating projects that deliver a healthy mix of benefits Sustainability to the company and society; (b) building a CSR team that can engage, motivate, and Many companies have developed a parallel stream of when needed, force internal managers to prioritize activities under the ‘sustainability’ banner, aiming to CSR; and improve the environmental and financial sustainability (c) computing the benefits of the programme to the of the business in the future. This includes shrinking the community and the company vis-à-vis costs. environmental impact of all aspects of the business by lowering energy consumption or converting to renewable Some examples of shared value projects from a energy sources, reducing carbon footprint and waste by- CSR perspective include Hindustan Unilever’s Shakti products of operations, and using environmentally friendly programme where the company trains rural women to materials. Over time, such actions are expected to be good for sell its products in their and nearby villages, thereby society, environment, and the company. Sustainability can developing a powerful grass-roots distribution channel. also promote well-being of critical operating stakeholders, In the process, it has empowered 65,000 women, called such as employees, vendors, and business partners.

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Sustainability typically focuses on reducing costs OPPORTUNITIES FOR CSR and risks for the company, while also benefiting the IN LIVELIHOODS environment or communities, while CSR can undertake actions that do not directly benefit the company at all, In 2012, India was estimated to have about 490 million at least in the near-term. Sustainability usually lays more workers, the second largest workforce after China. Of emphasis on environmental factors, while CSR typically these, 94 per cent are in the unorganized sector including is more focused on society and people. There is a lot of agriculture, artisans, and micro-industries. Of the 6 per room for both to overlap. cent in the organized sector, private industry employs Sustainability initiatives may be part of CSR or vice about 35 per cent, while government and state-owned versa, or both may be managed separately. Usually, enterprises employ 65 per cent. sustainability initiatives are closely intertwined with operational activities, while CSR focuses primarily • Agriculture, horticulture, dairy, and related sectors on activities outside the business and, therefore, employ about 52 per cent of labour—over 250 million competencies required differ too much for both to be people. effectively run by the same team. This decision should • Unorganized manufacturing, unorganized services, depend on the business, organizational structure, and and unorganized retail/wholesale employ 10 per cent CSR/sustainability strategies of the company. each. cKinetics (www.ckinetics.com) is an advisory firm • Organized manufacturing employs 5 million or about focused on helping companies with sustainability 1 per cent. strategies. • Social services (including private schools and In summary, CSR is moving in directions so that healthcare) employ 1.1 million or 0.25 per cent. companies take greater responsibility for the social impact In recent years, absorbing and creating productive of their CSR spending and that they derive greater benefit livelihoods for the 15 million young people who come for such spending and efforts. of working age each year, as well as improving prospects

A. Corporate philanthropy B. Shared value C. Sustainability What it is? Granting funds and volunteering Using corporate resources and Reducing any negative effects of time for ‘good’ causes that may or process to create mutually the company’s operations on the may not be related to the company beneficial social impact environment or society Benefit to Depending on plans and The concept itself implies Often requires upfront investments company execution, may be minimal (even significant benefit to company, that create medium- and long- zero) or substantial—direct which should include direct term gains as savings kick in; financial gain usually small financial benefits reputational and ‘soft’ value can be considerable Benefit to Depends entirely on the Primary beneficiaries will Communities and environment society company’s plans and quality of be stakeholders or potential near operating areas of the implementation stakeholders of the business company, and direct stakeholders Operational Largely run separately from Managed by an independent Managed by a monitoring and level operations of firm team, but integrated with certain planning team, but is integral to aspects of business operations many or most operating decisions of company Timeframe Can be short- or long-term Long-term programmes as they Multiple parallel projects with programmes are tied to the company’s needs or goals of varying timeframes strategies Social and Entirely dependent on quality of Generally substantial impact as Financial savings motivate the environmental initiative—may create very little or expertise of the company is company to do it well, thereby impact significant impact being deployed creating considerable impact

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for the existing workforce, has become an important operations that are aligned with its businesses, as well political, economic and social priority. as about 80 other courses including computer training The unorganized sector has low productivity and and other disciplines unrelated to its business. low incomes—in 2006, it produced 57 per cent of Companies can bring the following to the training GDP, only one-sixth the productivity of the organized process: sector (Kulshreshtha 2011). Incomes are lowest in • Curriculum that is relevant to industry needs rural unorganized sector jobs, and this drives demand including best practices—even if that requires for government jobs and urban migration. The urban longer or more expensive programmes unorganized sector holds great potential to create large • Provide equipment that is actually used by numbers of reasonably paying jobs to service growing industry to training centres so that students are urban populations, but training, productivity, and skills familiar with the needs of companies remain a constraint. • Select prospective students who have the aptitude In all industries, there exists a value chain that for particular jobs employs labour and uses capital (including machinery • Provide industry teachers or train the trainers as and equipment) to convert raw materials into finished per industry norms and needs products. By evaluating such value chains, companies can • Teaching soft skills including teamwork, find points where they can intervene with CSR projects, discipline, and leadership to create meaningful difference to the livelihoods of a • Recruiting the best trainees, thus motivating small or large number of families. students to excel The following identifies a few parts of most value These create opportunities for donating funds as chains where companies can find appropriate CSR well as volunteering. opportunities through strategic philanthropy as well as Types of opportunities: Each of these is important shared value creation. and desperately needed to make India’s growth more inclusive, boost productivity, and lower inflation 1. Developing capabilities and skills: Skill development in labour costs. Each has its own set of challenges has become a large focus area for corporate and and companies need to understand intricacies while government, to train youth for employment in formulating plans. industry (manufacturing and services) as well as for • Training youth for generic entry-level jobs self-employment. This is an opportunity for shared • A challenge here is to be affordable; many value projects, as a company can benefit by creating programmes are too short and low quality skilled labour for its own industry, and lowering and do not impact enough skills to create a costs of recruitment for itself as well as its channel sustainable career for the student partners—thus earning goodwill. • Up-skilling existing industry workers (not own A strategic philanthropy approach would be to workers) for complex or specialized tasks identify industries that require trained people and • Jaipur Rugs Foundation conducts trainings for supporting organizations that can provide such skills weavers, teaching them latest techniques and development—even if these industries are not where tools to meet new standards the company operates. Dr Reddy’s Foundation is • Training in specialized skills required in their such an example where they train urban youth for industry BPO, retail, and hospitality jobs, while the company • Financial assistance and loans for workers and is in pharmaceuticals. For shared value, the company students wanting to pursue such programmes, will focus on its own and allied industries. Godrej especially if they are forgoing current income for Industries is such an example and GMR’s Varalakshmi training in a better vocation, or if they want to Programme trains school drop-outs for jobs like attend higher-quality programmes that are longer electrical and elevator maintenance and airport or more expensive

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Implementation: driving sales. For example, an electrical equipment • There are many social organizations including manufacturer that trains electricians may find social businesses, non-profit organizations, and that these electricians recommend the company’s corporate foundations that have learnt how to products due to familiarity and comfort through effectively run training programmes and centres. the training process. Partnering with such organizations is the most Challenges and risks: effective way to implement CSR in this domain, • Scaling up training programmes can be as they have the experience, networks, processes challenging due to cost of infrastructure, to attract students and team, and infrastructure difficulty in attracting minimum batch sizes, and and locations. availability of trainers. • Many companies have partnered with or taken • Drop-outs are significant as young people often over the management of ITIs (Industrial Training are not committed to a certain stream of work Institutes) of the government, funding them, and may change tracks during or shortly after improving infrastructure and course content training. • The company can identify and fund such • This makes it difficult to assess impact of organizations to run the programme, and assist programmes, as many graduates of training by creating curriculum, training the trainers, and programmes do not get jobs or choose to not get helping to select the right students one. Even those who, may not stay long and may • Based on its preferences, the company can do the switch careers, which is difficult to track. following: 2. Creating and supporting livelihood institutions— • Donate funds for operating costs of collectivizing producers through cooperatives, farmer implementing organizations such as non-profits producer companies, and social businesses: Companies • Subsidize cost of training for students often struggle with community-based CSR efforts due through scholarships, so the best students to dispersed, unorganized beneficiaries, and lack of get opportunities without regard for cost. systems and processes in communities through which Often, aside from course fees, lost income, to deliver support. Therefore, creating institutions or travel and living costs to location of training, one-time infrastructure is easier to manage than, say, and uncertainty of jobs prevent people from capacity-building assistance to create livelihoods. attending training programmes. Agriculture is prime for this approach—while it • Donate equipment and tools for students to be employs 45 per cent of India’s labour, it produces trained on only 14 per cent of GDP; it is growing at 2.3 per cent Benefits to the company: annually and over 80 per cent of farm households • Set standards for the industry by influencing earn less than USD 1 per day per capita. Companies curriculum and processes taught can sometimes start by identifying organizations, • Lower cost of recruiting top talent—can identify such as cooperatives and farmer producer prospective recruits during training process and companies (FPCs) to work with, or organizing recruit them quickly producers into such institutions, which can have • By teaching specific processes and skills, the significant benefits for the producers but often fail company has no need to further train such staff— due to mismanagement, non-professionalization of other companies may incur costs to train fresh management, and political interference/interests recruits on company-specific processes leading to leakages or certain groups capturing • Establish brand name and reputation amongst disproportionate benefits, and so on. The failed workers in the industry cooperative movements in India are well known—a • If relevant, training those who install, use, or few successes, such as Amul, are exceptions. service the company’s products can increase Two primary reasons for such failures are lack familiarity with the company’s products, thus of professional and unbiased management, and

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unavailability of adequate capital to make the agarbattis at their homes. Going a step further, right investments to create value for the producers. this centre could have a training and quality Corporates can step in to help address both issues, control staff member to guide and help the providing the financial resources and managerial women do a better job. Many companies have set oversight including instituting processes, governance, up agriculture support centres like this in rural and risk management systems that can make areas. Producing sanitary pads and other simple cooperatives and FPCs more transparent, financially healthcare products for local consumption can successful, and beneficial for its members. become viable enterprises. Working with socially oriented businesses can • Create shared infrastructure: Many CSR be a convenient way for corporates to create social programmes create rural infrastructure such as impact and help their business. Social businesses roads, check dams, micro-grids for electricity (solar can be suppliers, distribution channels, and product or biomass), marketplaces, or storage facilities for development partners, and the company can support crops and goods for the benefit of livelihoods of these enterprises through training and know-how, local communities. The Aditya Birla Group builds making investments or providing working capital irrigation and water storage facilities in villages and grants, and providing business opportunities. and undertakes rural electrification, while DLF Axis Bank Foundation (ABF) has provided grants Foundation has built roads to connect villages to Earthy Goods to expand its supply chain and to highways. By electrifying villages, Cummins marketing footprint. The Taj Group of Hotels has Foundation has helped multiply incomes. helped bee honey producing company, Under the • Equipment and tools: An electric products company Mango Tree, to produce honey in villages around its gave kits of electrical devices to electricians in a properties and buys and serves the honey at its hotels, peri-urban area so they could work more safely and thus providing financial assistance and a market. improve standards and productivity. Deutsche Bank Such an initiative can be targeted for a few years and Union Bank of Switzerland (UBS) support to create a sustainable enterprise that will create long- the Be! Fund which provides equipment of up to term benefits for communities. Rs 5 lakh to local youth who can solve a local problem 3. Asset creation to enable and enhance livelihoods: Having such as providing a transport solution or renting the right equipment, tools, and infrastructure can water pumps until a farmer repairs his own that has improve productivity and quality of work done, and broken down. ABF, in partnership with the NGO thus incomes. Often, however, farmers, craftsmen, Bandhan Konnagar, gives farm and non-farm and semi-skilled workers cannot afford to buy these equipment to women for activities such as goat equipment, and CSR programmes can identify rearing, fishing, and cosmetics businesses, enabling and provide the right equipment free of cost or at them to become entrepreneurs. subsidized prices to enable or improve incomes. This kind of support is relatively easy to identify Such support can take on different forms, and provide as all over India, as across urban and depending on the sector, geography, and needs of rural areas we find people who do not have the right people and communities. assets to do their job well. Sustainability, however, • Establish facilities: A company built village-level becomes a question—What happens when tools agarbatti production centres with machines, break down or infrastructure needs repair? One where women could come at any time of the way is to charge small usage fees for such ongoing day and use the machines for a very small fee. maintenance. When these assets need to be replaced, The fee covered costs of maintaining the centre however, either the incomes may have enabled and machines, while the capital expenditure to savings so people buy new assets on their own or with establish this was treated as CSR. Women could loans, or CSR may need to step in again, depending thus work very close to their homes at much on individual cases. Either way, providing such assets higher productivity than if they hand-rolled can have a significant impact on livelihoods.

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4. Productivity enhancement: Technology and know- Similarly, people will not abandon one profession or how: Corporates can share intellectual property trade for another due to risks of being unsuccessful and processes that could be safer, lower cost, and and losing whatever income they earned in the more efficient that traditional means. Such support former profession. is often delivered through camps and fairs, but Companies could in essence provide insurance technology transfer and process changes often in such cases, allowing people to try new techniques need consistent handholding for a period of time, or make changes that can lead to a better future, without which people fail to properly adopt the new without fear of failure. Such assurances should techniques. Companies can consider using their be bundled with the new process or training own locations if convenient, or creating permanent for a new vocation, and multiple companies locations in villages or urban areas to provide on- could come together, if needed, to offer such a going assistance, so as to meaningfully help the solution. For example, if a company is trying to target population, perhaps for such period of time increase adoption of new environmentally friendly till the new process has been properly adapted into pesticides or organic farming techniques, a practice, and thereafter providing periodic updates financial services company could provide guarantee through camps. for a certain level of income if the new technique ITC’s early e-Choupal project was one such fails. If a training programme finds that working attempt where village booths equipped with a professionals cannot forgo their current income to computer and internet access could help farmers and be training on a new, more lucrative profession, villagers access information on farm practices, risk a corporate could provide scholarships that cover management, market prices, and input costs, thus part of the income lost during training, to entice empowering them to make better decisions. IBM students. is working with the NGO Drishtee Foundation The Adani Foundation provides life insurance to develop Smart Rural Aggregation Platform cover of Rs 30,000−75,000 and student scholarships (SRAP) to offer agriculture advisory and extension to families of fisher folk who are below or marginally services to rural farmers, as well as setting up supply above the poverty line. chains, e-governance services, a rural help line, An important aspect of sustainable livelihoods micro-financing, and other services—working to is the ability to cope with shocks. This approach, bring India’s villages up to the technological speed essentially of insuring against failure, can also be of its cities and raising incomes of farmers and the used to encourage people to develop multiple income self-employed in villages. Deepak Foundation’s streams, which will help people cope with shocks in Apna Kisan Mall equips farmers with information, any one source of income. scientific knowledge, and modern practices 6. Creating and supporting market access for local producers: of farming, and offers audio–visual training While appropriate infrastructure, as mentioned programmes and exposure trips. SMS-based crop earlier, can help producers, it is also well known that advisory service and weather information is provided in various sectors including crafts and agriculture, to farmers regularly. middlemen and traders capture significant value, 5. Risk management and mitigation: Very often, families while producers earn little. Corporates, with their living on marginal incomes and with no security understanding of supply chains, marketing, and net are so dependent on current streams of income business development, can help such producers, that they are unable to take any risks even to try particularly where they are organized to operate at new approaches that can improve income levels or some scale (for example in SHGs, cooperatives, or stability of income. Resistance seen amongst farmers FPCs), to access markets more directly so as to earn to adopt new techniques or cropping patterns is a higher incomes. prime example—as any failure or problem with the Companies can also help such producer groups new technique means immense financial hardship. design the right products, reach buyers, and negotiate

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the right terms, particularly if they are in the same incomes of various entities in the sector and benefit industry. A FMCG company can help gain access corporate and unorganized players in that industry. to organized retail, while a clothing or furnishings Normally, such an effort should be integrated into business can help artisan groups access international other interventions in the same sector so the company markets. is addressing various inefficiencies, including industry Corporates may find it easier to work with ‘social structure, in order to improve livelihoods of those businesses’ that have emerged to help producers engaged in that sector. in such sectors, but often these social businesses Thus, companies can find CSR opportunities that suit themselves are small and resource strapped. For a their resources, geography, and business objectives. The corporate, however, such social businesses may be most important thing is to be consistent as it usually takes easier to work with, while the financial support several years to make a permanent impact on livelihoods can directly flow to the producer groups. Each (asset creation projects can be quicker). sector has its own supply chain and economics, which need to be understood to develop such an Supporting Government Programmes intervention. 7. Organizing industries: Companies can also play a role As mentioned earlier, the Government of India and in organizing the unorganized sector in their industry state governments spend nearly USD 75 billion on by creating standards, lobbying for regulations and social projects each year, including through NREGA, guidelines, and training the sector in these aspects. This NRLM, regular healthcare, and school systems. As per could be particularly useful in crafts, food processing, the programme guidelines, norms, and budgets, however, and construction. Some of these activities will not be many expenses are either not allowed or spending is considered to be CSR as per the Act, but on the whole, restricted, which leads to various problems, which CSR this can help to improve service levels or products, and can help address.

No. Problem or challenge How CSR can help 1. Often, research, planning, engineering and By understanding such projects and filling gaps, CSR can help ensure that design, project and operations management, projects are well designed and properly implemented for effectiveness. and supervision are under-invested in, while The Ambuja Cement Foundation spent money on consultants and invited actual construction and labour costs are the company’s engineers to redesign a dam being built by the government, covered. Under-investing in some of these thereby significantly increasing its benefit, while spending very little money. activities means that the end solution may The Swades Foundation, through its deep understanding of the areas where not solve the problem, or may be of inferior it operates, regularly assists government programmes to be implemented quality and utility. and monitored more efficiently and cost effectively. 2. Projects run out of budget and are left By monitoring planned and ongoing projects, companies may be able to incomplete or are inordinately delayed, predict problems and avoid incomplete projects, or invest their own CSR causing complete waste of government funds funds to accelerate completion, so benefits of the projects start flowing to the people. Maharashtra alone is estimated to need over Rs 70,000 crore to complete agriculture projects that are underway—which will take over 10 years at current budget levels. CSR could help accelerate this pace by providing expertise and funds to fast-track projects. 3. Existing infrastructure is often neglected Identifying useful but poorly maintained or abandoned infrastructure that and not maintained, reducing utility the company can adopt and maintain 4. Communities may not be aware of After understanding the needs of a certain area, CSR can monitor government schemes that can be utilized government programmes and allocations to ensure that area gets what it for their area or problems needs, including subsidies and support for new projects that can improve local livelihoods (e.g., capital expenditure rebates to set up small-scale industries).

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Such approaches require a good understanding of Indeed, the social (and government) sector suffers ground realities as well as the ability to work with various frequently from fragmented efforts, parallel programmes, government departments and officials for long periods of duplication, and lack of critical mass of resources to time. Companies can also hire consultants and advisors see projects through to an impactful conclusion. By as needed to ensure they get the right solutions. The collaborating, CSR can sidestep these challenges and leverage offered by solutions can be incredible—small support the social sector and government to maximize CSR efforts can yield very large benefits. their impact as well.

Partnering with Other Companies CONCLUSION

Many companies have established track records and CSR needs to be viewed and treated partly as a experience working on certain issues or in certain company’s responsibility and obligation to society and geographies. Whether companies are relatively new the environment, and partly as a tool that can further or established on their CSR journey, and regardless its goals. By making CSR mandatory, the Companies of whether the budget is small or large, there is scope Act creates a unique opportunity for corporate India to partner and assist each other where objectives to use its resources—money, people, technology, and priorities align, to maximize the impact of their networks, etc.—to further noble objectives of any CSR efforts. modern society—a minimum standard of living Companies from the same industry may sometimes and basic services for all, opportunities for jobs and be reluctant to join forces unless it is an industry-wide livelihoods, and a safe environment where all can effort, but two companies who work in the same region, thrive. or have common stakeholder groups, can find joint CSR By focusing CSR on livelihoods, companies can opportunities. In such cases, it is important to set clear quicken income growth so more people enter the goals of each party and their responsibilities (financial market where they can buy the goods and services they contribution and others). Sometimes, one company may need, rather than depending on charity, government just contribute funds to help expand the CSR initiatives subsidies, or free services. In various ways, CSR can of another company (getting recognition and other benefit companies equally in terms of reputation, benefits in return), while sometimes both companies brand image, developing supply chain partners, may jointly manage the CSR programmes—in which or creating future customers. There are different case, it can be useful either to create a team with approaches to CSR, such as strategic philanthropy and members from both companies, or have an independent creating shared value, each with its own advantages operations team. and challenges, and companies need to have clear CSR The Apollo Group that manufactures vehicle tires objectives before they can develop clear CSR plans and runs an HIV awareness programme for truck drivers. programmes. They decided to expand this programme by setting up While the Companies Act put down various health centres for truck drivers along highways. Apollo regulatory requirements and norms for CSR, companies and ACF have opened few centres together, with both should remember that CSR extends beyond the Act and companies funding the centres and Ambuja Cement to that end, should be willing to support causes that are operating them where it has a presence. Both companies important to society. India consistently ranks near the get equal visibility and hold periodic joint reviews to bottom of every social and environmental indicator— ensure that goals of both companies are being met. here is an opportunity for companies to help change Livelihood programmes require long-time frames this. Partnering with government, social businesses, and can be capital intensive and, therefore, partnerships NGOs, and other corporates is an effective way to pool between companies can be very useful to ensure focus, capabilities and funds, to maximize the impact of social adequate resources, and stability of the programme. programmes.

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Case Study Conversation with Saumya Lashkari, Head, Godrej Good and Green (G&G) Keywords: Creating Shared Value, Employability, Skills Development Launched in 2011, Godrej Good and Green is the shared value initiative of Godrej Group—a vision for playing a part in creating a more inclusive and greener India by achieving the following by 2020: 1. Ensuring employability: Train 1 million rural and urban youth in skilled employment 2. Creating a greener India: Achieving zero waste, carbon neutrality, positive water balance, and a 30 per cent renewable energy source 3. Innovating for good and green products: Having a third of portfolio revenues comprising good and/or green products and services—defined as products that are environmentally superior or addresses a critical social issue (e.g., health, sanitation, disease prevention) for consumers at the bottom of the income pyramid 4. Brighter giving: Structured employee volunteering These goals span across CSR and sustainability (#1 and #2), are deeply intertwined with business strategy (#2 and #3), and engage all employees (#4) across all four businesses—chemicals (Godrej Industries Limited), consumer products (Godrej Consumer Products Limited), Real Estate (Godrej Properties Limited) and Foods (Godrej Agrovet Limited) with revenues of over Rs 8,000 crore and profit after tax (PAT) of Rs 325 crore in FY 2014. Creating Shared Value: While the group’s CSR programmes (mostly traditional philanthropic and charitable activities) were undertaken primarily through corporate trusts, G&G is centred and aligned with corporate strategy and business operations, to create shared value for society, the environment, and the business. The company invests significant resources in developing and running G&G programmes and derives substantial benefits. The process: Buying into the concept of shared value early on (perhaps because the trusts already took care of philanthropy), Godrej Industries retained advisors FSG and Dasra to help develop an overarching strategy for CSR, sustainability, and positive business impact. Three questions were asked: (a) What does India need? (b) What does Godrej need? (c) What does each business unit need? Loosely, this translates into the first step of developing a shared value strategy:Identifying present and future business challenges and risks whose origins and solutions lie largely outside the boundaries of the company. The next step is toidentify and prioritize those challenges that the company can address. While many ideas emerged, employability was chosen as it ticked all the three questions, and created shared value with the potential for deep impact on the company and society. Education, nature conservation, healthcare, etc., do not create shared value and would be left to the corporate trusts for philanthropic projects. The other two goals (#2 and #3) were chosen on principles of environmental sustainability and responsible business. To go deeper, the company understood and forecasted the employment needs of its businesses and its supply chains and partners in the long term. FMCG needed sales staff, but also beauticians, retail staff, and others to sell and use the products; Agrovet needed better trained farmers; real estate business needs construction workers, electricians, plumbers, and interior designers, while its factories needed turners, fitters, and people with other industrial and mechanical skills. From this assessment, the company created five targets for 2020 (10 years): (i) Employability: 1 million youth trained (ii) Waste: Zero waste and carbon neutral (iii) Water: Positive balance (iv) Energy: 30 per cent renewable energy sources (v) Revenue: 33 per cent from G&G products Then the company identified specific programmes to achieve these targets and began exploring how to operationalize and launch these initiatives.

(Continued )

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Case Study (Continued) Processes and efforts that have worked: 1. Senior management made G&G a priority: Strong messages from senior leadership, including the Vice Chairman, Nadir Godrej, and Executive Director, Nisa Godrej, holding quarterly reviews with the G&G team and relevant business heads on G&G projects, respectively, sent strong messages. 2. Key staff have KRAs related to G&G: All business heads will have KRAs related to achieving all the targets including employability targets. Thus, head of construction business will be responsible for training a certain number of construction workers aside from meeting energy, waste, and other targets for the business. 3. Focus on doing the work well: In the early stages, communications and PR, which are involved with projecting the company to the external world, were not included in G&G activities. Thus, the team had a chance to learn, experiment, and improve processes without external scrutiny or expectations, but with serious demands from the company’s leadership. Pressure must be applied to ensure rapid progress—in early days, it is better from internal than external quarters. 4. Prioritize social impact more than benefit to company: Particularly in the early days of the project, this ensures every employee understands and internalizes the social responsibility of their work. While programmes were selected based on shared value, day-to-day operations of G&G focused entirely on creating social value, not benefit for Godrej. 5. Quickly build a competent core CSR team: Having a focused team that reported directly to the Board reinforced messages that G&G was a strategic priority. Building a high-quality team with a mix of business and social sector skills ensured projects were well conceived, that business heads were engaged and made responsible, and that project management was as rigorous as any business project within the group. In earlier decades, business functions like HR or corporate communications did not have full-time, specialized, and trained senior staff, but over time those became important business functions. CSR will see the same evolution. 6. Centralize control in early days: A dedicated team working with all business units helped share knowledge, ensure all projects were aligned with corporate objectives (versus each business running with its own initiatives and programmes), and develop tools and formats. Currently, all projects are managed jointly by business teams and G&G staff; over time, project management will be handed over to business teams, while the G&G team will continue to develop policies, programmes, tools, and formats, and undertake audit, impact assessment, communication, and other such functions. 7. Be willing to experiment and fail: G&G follows a process:

Conceptualize Design Pilot Test and Refine Scale and Sustain

This helps iron out kinks in early stages, bring in appropriate resources at each stage as needed, and abandon projects that do not work without investing too much in them. It also means progress will be slow in early days, but then programmes can quickly gain momentum once they pass the ‘Test and Refine’ phase. Collaboration with other corporates: Companies seeking to partner on CSR activities must be authentic and honest about their goals and objectives, and committed about what they can bring to the table (skills, knowledge, funds). Without such transparency right from the start, joint efforts will fail. Working with non-profit partners: While the sustainability projects are executed internally, employability programmes are run by partner social enterprises. Lessons learnt:

1. Aside from setting goals together and funding programmes, the company must help bring good practices and systems to its partner NGOs that may lack these, help to strengthen management, and reduce costs and boost efficiency of the NGO. Such engagement deepens understanding between partners, strengthens long-term partnerships, and, ultimately, the company gets more impact for its CSR funds. A shared value approach both prioritizes such value creation as the company directly benefits from it and is able to deliver such support because CSR is closely intertwined with business operations. A philanthropic mindset may not be able to do the same. 2. Solicit honest feedback from implementation partners so the company can improve how it works with them so as to get better results and benefit more from CSR efforts.

(Continued )

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Case Study (Continued) Key challenges: 1. The pace of rolling out programmes and process of pushing operating responsibility to business teams (from G&G team) should be sensitive to performance pressures, bandwidth, and skills of business managers to handle these projects. The G&G team incubates and pilots all training projects along with business teams, but gradually reduces its engagement so that the business team ultimately takes responsibility for the scaling process. However, different business teams progress at different speeds due to the aforementioned issues. 2. Impact assessment is very important for internal evaluation and for externally explaining the CSR strategy. Lack of standard metrics to measure impact of training programmes, in particular, makes it very hard to compare performance across players or to properly communicate what the company is achieving. Just the number of people trained is not enough, as the quality of the programme and the end result of creating employment must be met—but these are very difficult to capture and track over time. 3. Finding senior staff who understand the social sector, have strong domain and functional skills, and who can operate within a corporate structure and work closely with business heads, remains a challenge in expanding G&G.

Case Study Conversation with Pearl Tiwari, Head of Ambuja Cement Foundation (ACF) Keywords: Corporate Foundation, Integrated Development, Livelihoods When setting up its first factory in Ambujanagar, Gujarat, in 1987, Ambuja Cements first had discussions with the local community to acquire land and address any concerns about its factory. The biggest was that a cement plant would destroy agriculture in nearby areas due to pollution from cement dust and consumption of fresh water used for manufacturing cement. Ambuja Cements demonstrated its concern for environment and the community by building its first factory to Swiss standards—a rose garden set up outside the factory flourished, allaying concerns about air pollution. Aside from increased project costs, however, such technology helped to improve operational efficiency and energy consumption, which benefited the business. In 1988−9, it took up the Van-Vihar Project to convert a mined quarry into an environmentally restored and scenic location and in 1993, the ACF was established at a time when only a handful of very large Indian corporates undertook meaningful social development activities. ACF was set up to ensure that community engagement and development got appropriate attention. The company had also learnt by then that special skills are required for community-based efforts and simply deploying engineers to do such work will not work. So, ACF, from the start, hired social workers and others with relevant and specialized skills, and had HR policies relevant to its team and mission, different from Ambuja Cements. Mission: ACF firmly sees its mission as furthering the company’s goals by providing for communities and employees. Execution, however, is not by undertaking projects that the company believes is important, but by engaging and listening to locals, understanding their needs and concerns, and then using high-quality staff and processes to address these needs. Activities and impact: Early on, in the part of Gujarat where it was based, drought and availability of fresh water was a major problem. Water resource management became the first focus area, with the company focusing on community action, behaviour change, and building infrastructure like ponds and check dams to harvest and retain water. This has dramatically improved water availability, affecting agriculture, animal rearing, health, sanitation, and the environment—creating green patches in the desert. Focusing on the most significant problem faced by the community yielded incredible goodwill and local insight. The company built hospitals and schools for its staff, but opened these up to the local community, creating goodwill and greater engagement between staff and locals. It also helped to improve local health and educational facilities. The company now provides comprehensive healthcare and supports 350 schools to improve the quality of education. Over time, livelihoods emerged as the key issue in these poor communities. While the company could employ some of the educated or highly skilled labour in the region, most people had low skills, usually in agriculture, yet hoped for jobs with the company. Recognizing that this could create resentment (towards the company and particularly employees from local communities), ACF realized that if people were more self-sufficient and earned decent incomes, they would not expect or need jobs from Ambuja

(Continued )

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Case Study (Continued) Cement. ACF built a multi-pronged approach that included seed production, sustainable farming, micro-irrigation, inviting experts and providing information, creating learning groups for farmers, cattle rearing, and veterinary services. Over time, ACF encouraged people to diversify from agri-livelihoods and thus started its thrust into vocational skills development in 2005—today it runs 16 Skills and Entrepreneurship Development Institutes (SEDI) in 10 states, offering 56 different technical and non-technical programmes. Unlike Godrej’s model, these programmes are not related to the company’s business or recruitment needs. Thus, over time, ACF developed the classical integrated development model, addressing an increasing range of community issues, in the attempt to make these regions more prosperous, healthy, and self-sufficient. Benefits of ACF to Ambuja Cement: Initially, even though CSR was a clear priority for founders of the company, it was seen as a waste of resources by business managers—only spending, no earning. Co-founder, Mr Narotam Sekhsaria, always asked the CSR team to focus on doing good work, without considering interests of the company. Over time, managers started seeing the value of ACF in the following ways: 1. Community goodwill helped business expansion: When the company expanded its manufacturing facilities or even opened plants in new areas, the overwhelming community support for them helped acquire land and get permissions more easily—significant barriers particularly for extractive industries in India. Ambuja Cement has become a ‘neighbour of choice’. Today, the ACF team moves first into any area the company is considering for expansion, and builds community relationships, addresses their concerns, and makes plans for local development. Based on needs, resources, and partnerships (particularly with government), the radius of activities moves outwards from the factory location. 2. Strengthen government relationships: ACF’s deep and genuine commitment to social work and quality of work done has made ACF a choice partner for implementing government programmes. Local farmers nominated ACF as the implementation agency for the government’s Krishi Vikas Kendras, which today are operated by ACF but 95 per cent funded by the government. Local politicians value the improvements that ACF brings to their constituencies and support rather than harass the company. The company benefits through quicker processing of its work by the local government, little harassment by officials, and faster implementation of new projects—all of which have tangible financial value.

Governance and management: ACF presents an update of Present to Ambuja Cement its plans and projects to the Board of Ambuja Cements twice Corporate Sustainability National Executive Council a year. The Head of ACF reports directly to the Chairman Steering Committee 2-3x per year of the company, which sends a strong message to the entire - Meets Quarterly company about importance of CSR. Includes: - Invites other relevant ACF is one of the three legs of sustainability at Ambuja • Head of ACF business executives • Head of manuf. excellence - Responsibilities: Cement, the others being Manufacturing Excellence and • Head of environment • Sets annual priorities Environment. • Ensures compliance To ensure coordination across all three legs of with regulations sustainability, Ambuja Cement has established a Corporate Sustainability Steering Committee and Unit Sustainability Steering Committees at each manufacturing site. By having Present to Regional senior business heads on these committees, the company Unit Sustainability Steering Committee Executive Council ensures that all three legs get due importance and attention. each month Moreover, through rigorous reviews, it ensures that all factory Includes: - Meets Monthly locations share knowledge, best practices, and responsibility • Business Unit Head - Responsibilities: for company-wide goals. (Chair) • Implementation of policies • Heads of Depts related to • Meeting goals and targets Partnering with government: Having established itself environment and sustainability: as a high-quality social development organization, ACF ACF, Labour, Environment, has emerged as a key implementation partner for various Technology, etc government projects. Today, the government funds about 80 per cent of ACF’s work, demonstrating how companies can leverage CSR spends manifold. (Continued )

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Case Study (Continued) As mentioned before, local communities sometimes request ACF to implement government schemes, knowing that ACF listens to their perspectives and concerns, brings in processes and project management, technical skills, and, if needed, funding, to ensure projects are well executed. Implementation strategy: ACF is an operating corporate foundation, with a large team that develops and executes programmes. This gives it greater control over quality of programmes and creates the flexibility to respond to evolving situations rather than being dependent on external NGOs, and helps the company to meet its own needs from CSR. Due to this structure, ACF can also create highly integrated programmes, which is difficult when working with multiple NGO partners. However, corporate foundations partner with NGOs, where possible, if the output can be exactly what the company needs. Partnering with other corporates: ACF sees the new Companies Act as an opportunity for companies to come together and contribute towards solving parts of a problem, thereby addressing problems holistically. To this end, ACF has partnered with Apollo Tyres to set up health facilities for truck drivers. ACF, with its experience in healthcare, manages these centres, while both companies fund it jointly, get equal visibility, and review performance periodically. ACF partnered with Power Grid Corporation of India to operate mobile health vans. While Power Grid Corporation pays for the vans, ACF is able to operate them at very low costs due to its existing infrastructure, management, and overheads in the region. At its 16 training centres, it has partnered with Taj Group of Hotels for hospitality courses and with Godrej Industries for beautician courses. Schneider Electric provides equipment and curriculum, trains the trainers, and provides joint certification for electrician training programmes. The most important thing is to focus on local context and needs, have a staff with the right set of skills, and a strong mandate from the company to do what is in the best interest of local communities.

Case Study Conversation with C. Joseph Babu, Executive Trustee and CEO of Axis Bank Foundation (ABF) Keywords: Strategic Philanthropy, Employability, Skills Development Set up as UTI Bank in 1993 as one of the earliest private banks in India, Axis Bank had become a mid-size bank by 2004. At this time, the senior management decided to consolidate and formalize its sporadic and ad hoc philanthropic and volunteering activities, and the Axis Bank Foundation was established in 2006. While the Bank continues to set priorities and directions, ABF has complete freedom and attention to implement programmes. Axis Bank hired Boston Consulting Group (BCG) to help identify the form and constitution for its Foundation, which was set up as a Public Trust due to ease of management compliance. BCG also helped identify education as a key focus area. Strategy and focus: Like many service sector or consumer-facing industries, banks do not have specific communities in which they operate. Therefore, ABF decided that trying to implement its own programmes would be a difficult and costly process, and it would lose flexibility to change courses and adapt over time. Since its inception, therefore, ABF has given grants to non-profit organizations (and occasionally social businesses) to run and expand their programmes. In 2010, after the arrival of Mr Babu as CEO, ABF reviewed its focus areas and changed priority from education to sustainable livelihoods—including food security, income generation and skills development, and urban migration. It also set a new goal of having an impact on 1 million lives by 2017; 85 per cent of its budgets are invested in livelihoods, while 15 per cent is allocated to other areas including education, health, and sanitation. Until recently, ABF also oversaw sustainability, energy, resource consumption, and employee diversity programmes for Axis Bank. This has since been hived off as these activities on internal business processes and need very different staff, expertise, and focus from strategic philanthropic CSR. Approach and methodology: Recognizing that it takes a long time to impact livelihoods, ABF makes four to five year funding commitments and creates a five-year plan with a target number of households impacted, key milestones, and operating plan, so partner NGOs can build a team, design, pilot and scale programmes, to create meaningful impact during the grant period.

(Continued )

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Case Study (Continued) Unlike many Foundations that only fund direct programme costs, ABF focuses on funding the NGOs’ operating expenses— staff salaries, training, communications, technology, etc.—thus helping to build the partner NGOs’ institutional strength. For direct programme costs, ABF advises and helps its partners to tap government funds or the more traditional corporate foundations. Well-funded NGOs with good teams and resources are able to deploy programmes more effectively and maximize impact. Twenty-two livelihood programmes have been rolled out, impacting 7,50,000 families so far, well on its way to impact 1 million lives by 2017. These include agriculture interventions (across 50 backward districts in 24 states), skill development for rural youth, and supporting artisans, the second largest employment pool after agriculture, with product development support and market linkages. The process: Being a non-implementing, grant-making foundation, ABF has to ensure it has strong processes to review and approve grants, monitor progress, and assess impact.

1. Identifying prospective grantees: ABF accepts unsolicited proposals from NGOs and, through recommendations, also identifies potential grantees. 2. Evaluating proposals and due diligence: Proposals are reviewed on several parameters including impact on livelihoods, ability to raise other funds to scale, and depth and sustainability of impact created. Due diligence includes site visits, management meetings, and review of track records to understand management capabilities and core skills and weaknesses. 3. Creating a plan: A tentative five-year plan is usually drawn up jointly by the NGO and ABF team, and reviewed by the ABF Board before a grant is approved. This includes quantitative and qualitative targets and goals. 4. Once a grant is approved, a comprehensive baseline is conducted to document the conditions at the start of project, against which improvements can be measured. 5. Every project has its own set of impact metrics, though increase in income and cost per beneficiary are common benchmarks for all livelihood projects. 6. Every project is linked to a bank branch, depending on the area of implementation. An ABF Champion is nominated, an employee at that branch who takes responsibility such as organizing volunteering activities, taking customers to the project or publicizing the project at the branch, and giving the NGO space to sell its products at its office. This builds connect and buy-in with the 35,000 employees of the bank. 7. Monitoring: (a) Projects are monitored every month—basic information is collected from NGO partners and reviewed against set targets (b) Funds are released quarterly and a short site visit is undertaken before each tranche is released (c) A detailed review is done annually with the partner. Decisions to further scale the grant, maintain status quo, or even reduce the grant amount if the project is unable to meet targets or achieve expected impact, and there is limited scope to rectify the situation are taken at these annual review meetings. 8. Bank employees are kept informed of projects and progress, so this information can be used with customers and regulators to explain the positive impact of Axis Bank. 9. A rigorous mid-term evaluation is done after about two years to monitor progress, so any lessons can still be incorporated and validated

Over the years, ABF has spent significant efforts on due diligence and now has 42 implementation partners. Going forward, plans are to develop new projects with these partners rather than add new ones. This will deepen relationships and improve the quality of programmes as a good working relationship and understanding of each others’ culture and systems is already in place. Team and governance: In 2010, ABF had four team members. As the budget has increased and processes have become more rigorous, the team has expanded to 12 full-time members, overseeing over Rs 50 crore in grants each year. All ABF staff including the Executive Trustee are from amongst Axis Bank employees who can apply for full-time positions and are accepted based on interest in social work, skills, and background. ABF has now started recruiting staff from the social sector, so it has relevant expertise on its team. Adding middle-level managers from the development and livelihood sectors, in particular, should improve the quality of work. (Continued )

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Case Study (Continued) ABF has six trustees—three are external and three from Axis Bank. A significant external presence ensures operating independence of ABF. Working with the government: Helping deploy government programmes has a huge impact. • The corporate can pay salary and costs of NGO to run project well, while direct project costs come from government. • Any shortfall in government allocations, including timing mismatch, can be covered by the corporate to ensure the entire project is completed as planned. • Research, baseline and endline impact surveys, technology for collecting and managing large amounts of data can be paid for by CSR—huge value and insight can be generated from these activities. Advise to corporate foundations: • CSR is serious business. Get good people to do it, and you will get good results. • Keep arm’s length between corporate parent and foundation. Roles of each should be clear. • If something just is not working, cut losses and allocate more funds to what is working and is scalable.

REFERENCES Partners in Change, ‘CSR Spending Estimates – BSE TOP 100’, www.picindia.com Asian Venture Philanthropy Network. ‘Getting Started in Porter, Michael and Mark Kramer. ‘Strategy and Society: The Venture Philanthropy in Asia’, April 2014, http://www.avpn. Link between Competitive Advantage and Corporate Social asia/2014/07/21/getting-started-in-venture-philanthropy-in- Responsibility’, Harvard Business Review, December 2006, asia/ pp. 78–84. Bockstette, Valerie and Mike Stamp. ‘Creating Shared Value: ———. ‘Creating Shared Value: How to reinvent capitalism— A How-to Guide for the New Corporate (R)evolution’, and unleash a wave of innovation and growth’, Harvard FSG, 20th April 2011, http://www.fsg.org/tabid/191/ Business Review, January–February 2011. ArticleId/351/Default.aspx?srpush=true Prahalad, C.K. Fortune at the Bottom of the Pyramid. Wharton Borgonovi, Veronica, Simon Meier, Manjari Sharda, and Lalitha School Publishing, 2004. Vaidyanathan. ‘Creating Shared Value in India: How Indian Chambers, Robert and Gordon R. Conway. Sustainable Rural Corporations Are Contributing to Inclusive Growth While Livelihoods: Practical Concepts for the 21st Century, 1992. Strengthening Their Competitive Advantage’, FSG, October PriceWaterhouseCoopers (PwC) and Confederation of 2011, http://www.fsg.org/tabid/191/ArticleId/493/Default. Indian Industries (CII). ‘Handbook on Corporate Social aspx?srpush=true Responsibility in India’. 9 December 2013, http://www.pwc. Donaldson, Lex. ‘The ethereal hand: organizational economics in/assets/pdfs/publications/2013/handbook-on-corporate- and management theory’, Academy of Management Review, social-responsibility-in-india.pdf 1990, pp. 369–81. Samhita Social Ventures, ‘Highlights of the mandatory CSR Freeman, Edward R. Strategic Management: A Stakeholder provision in the Companies Act, 2013’, http://samhita. Approach. Cambridge University Press, 1984. org/highlights-of-the-mandatory-csr-provision-in-the- Kulshreshtha, A.C. (May 2011). ‘Measuring the Unorganized Sector companies-act-2013/ in India’, Review of Income and Wealth, May 2011, 12 pp. ———. ‘Challenges faced by social organizations in securing McWilliams, Abagail, Donald S. Siegel, and Patrick M. Wright and utilizing corporate funds’, 31 January 2014, http:// (2006). ‘Corporate Social Responsibility: International samAhita.org/wp-content/uploads/2014/02/Coffee-with- Perspectives’, Rensselaer Polytechnic Institute, Department of NGOs-1-Challenges-faced-by-SOs-with-corporate-funds. Economics Working Paper, 2006, 13 pages. www.economics. pdf rpi.edu/workingpapers/rpi0506.pdf

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Vijay Mahajan

INTRODUCTION By the 1990s, the prescribed level of per capita food consumption was produced domestically and imports State of Agricultural Livelihoods in India became near zero. As the arable land area of about 180 million ha has always been scarce in India, the increase in foodgrain India has a large agrarian economy with most of its rural production came from increase in cropping intensity and population subsisting on farming. Though the share of increase in yields per ha. While only 11 per cent of the agriculture in the overall GDP has fallen steadily from net sown area of 140 million ha was cultivated more than over 50 per cent in 1950−1 to 14 per cent in 2011−12, once a year in 1950−1, this rose to 38 per cent by 2008−9. the overall foodgrain production in India barely increased In terms of yields, the maximum gains were in wheat and from 52 million tons (MT) in 1951−2 to about 70 MT rice. By 2011−12, wheat yield went past 3,000 kg/ha or in 1964−5. The generation which last saw a big famine sixfold of the 1950−1 level, while rice yield was 2,300 kg/ in Bengal in 1943−4 has mostly passed away, and today’s ha or about four times the 1950–1 level (Venugopal and Indian youth have no memories even of the 1960s when Kaundinya 2014). By 2011−12, the production was over 257 the nation was facing severe food shortage and foodgrain MT. This is a great national achievement. Yet, the majority of was imported from the USA under the Public Law 480 India’s farmers are in distress. food aid programme. By the 1970s, due to the launch of Agriculture is still the predominant occupation of the green revolution based on high-yielding varieties of over 56 per cent of India’s population, who are either wheat and rice, India crossed over 100 MT of foodgrain cultivators or agricultural labourers. Even among production. cultivators, the most numerous category are the marginal

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(less than 1 ha) and small (less than 2 ha) farm holdings, farmers. But, as Table 5.1 shows, only 15.8 per cent of 63 per cent and 18.8 per cent of all farmers, respectively, small and marginal farmers grew vegetables and only 5 in 2006−7. However, they accounted for 20.7 per cent per cent grew fruits in 2005. Though the proportion may and 20.8 per cent of the land area, respectively. The have gone up since then, the participation rate is low: average marginal holding size was 0.4 ha and the average ‘Evidence has shown that smallholders do participate and small holding was 1.4 ha. This has made it very difficult make a sizeable contribution to the production of high- to eke a full livelihood for the most numerous among value food commodities, but their links to markets are farmers—the marginal and small farmers. not strong’ (Birthal et al. 2007). This has resulted in most farmers in this category Yet, the price realized by the farmers is usually a small engaging in non-farm activities in the off-season, when fraction of the end price paid by the consumer, as can be not busy with agricultural operations. The most telling seen from Table 5.2. example of this is the number of manual (tricycle) One explanation of this difference in the farm-gate price rickshaws that ply in the post-harvest months of and the consumer price is the long chain of middlemen November to May versus the monsoon agricultural that exists in the traditional marketing channels—from months of June to October. Even in agriculture, farmers the katcha adatiya (local commission agent who procures are trying to diversify into higher-value commodities from farmers) to the pucca adatiya (a commission agent such as vegetables and fruits, and milk production, which on the wholesale buying side), to the wholesale buyer fetches them a better yield due to the combination of to the retailer. However, even if those multiple layers land and labour. As can be seen from Table 5.1, by 2005, are removed, as has been tried in some cases, the price small and marginal farmers contributed as much as 83.5 difference remains significant. Another reason for this is per cent of all vegetable production, 88.4 per cent of the costs of procurement, aggregation, sorting, grading, fruits, and 77.4 per cent of milk. It appears most of these storage, transporting to terminal markets and then to commodities are indeed grown by small and marginal consumer outlets, and the risks and costs at each stage.

Table 5.1 Participation of small farmers in the production of high-value commodities Category Vegetables Fruits Dairy Participation rate (% of farmers in category who grow vegetables/fruits or engage in dairy Small and marginal farmers (<2 ha) 15.8 5.0 41.0 Medium farmers (2−4 ha) 14.8 2.7 56.7 Large farmers (>4 ha) 10.4 3.0 68.5 All 15.3 4.6 44.2 Production share by farmers in category who grow vegetables/fruits or engage in dairy Small and marginal farmers (<2 ha) 83.5 88.4 77.4 Medium farmers (2−4 ha) 11.9 7.1 13.7 Large farmers (>4 ha) 4.6 4.5 8.9 All 100.0 100.0 100.0 Source : Birthal, et al. (2007).

Table 5.2 Channel margins in various vegetables and fruits Prices at various stages Tomato Potato Cabbage Cauliflower Banana Price paid by end consumer (Rs/kg) 8.20 12.00 9.00 9.50 12.00 Price received by farmer (Rs/kg) 2.00 6.60 5.00 5.50 4.00 Price realization by farmers as % of consumer price 24 55 56 58 33 Price paid by end consumers as % of price received by farmer 310 82 80 73 200 Source : Murray (2009).

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The National Sample Survey Office (NSSO) conducted as well as better operations by the commercial banks. a Situation Assessment Survey of Farmers (NSS 2003)1 The share of credit cooperatives in agricultural credit has during 2003 as part of the NSS 59th round, collecting come down from over 50 per cent in 1970s to 16 per data from 51,770 farmer households in 6,638 villages. cent in 2012. Unfortunately, this survey has not been repeated more In input supply, thanks to state patronage, two very recently, but farmers’ livelihoods today may have worsened. large farmer-owned cooperatives were created—Indian Two of its findings are highlighted in the following box. Farmers Fertiliser Cooperative Limited (IFFCO) and Krishak Bharati Cooperative Limited (KRIBHCO). • An estimated 27 per cent of farmers did not like farming They thrive as organizations, and the total share of because it was not profitable. In all, 40 per cent felt that, cooperatives in fertilizer supply in India was 36 per given a choice, they would take up some other livelihood. cent in 2012, as per the data provided in Table 5.3. (Indeed this proportion in 2014 may be even higher.) In contrast to the Indian situation where cooperatives • Nearly 5 per cent of farmer households had a member are not major players in any sector except sugarcane, who belonged to a self-help group (SHG). Only 2 per milk, and rubber, farmers’ collectives are very significant cent had a member who belonged to a registered players in the value chains of developed countries. In the farmers’ organization. About 29 per cent of farmer households included a member of a cooperative society. European Union (EU), cooperatives account for 50 per Only 19 per cent had availed themselves of services from cent of the input supply and 60 per cent of processing and a cooperative. Most of these households availed of either marketing. The numbers for the US are 25 per cent and 30 credit facilities or services related to seeds or fertilizers. per cent, respectively; for Australia 30 per cent and 40 per cent, respectively; and for New Zealand 70 per cent and 90 per cent, respectively. In the Netherlands, the market Role of Farmers’ Producers Organizations share of Rabobank alone is 85 per cent in agriculture, (FPOs) 40 per cent in savings, 40 per cent in credit to small and medium enterprises, and 35 per cent in home mortgages. Let us dwell on the second point stated earlier. Farmers can Within the EU, different countries have different market be organized into informal groups, formal associations, shares occupied by cooperatives in different commodities cooperative societies, producer companies, and unions. and in different stages such as input supply, credit, and In India, cooperatives have been the primary modality processing and marketing.2 This is shown in Table 5.4. of organizing farmers. In spite of over a hundred years of What is the significance of farmers’ collectives state support to farmers’ cooperatives, it is disappointing (cooperatives or farmer owned-companies) having a large to note that only one in five farmer households availed of market share in most agricultural commodities and in any service from a cooperative. A majority of these user various steps of the value chain—from input supply to households got only a part of their crop credit needs and output marketing? The first thing we need to acknowledge fertilizers from the cooperative. is that value addition in just crop cultivation is quite low, There are next to no cooperatives (except in dairy and if one takes into account all the costs of labour, land rent sugarcane) in the processing and value addition side. or land quality maintenance, irrigation, inputs, and post- In sugarcane, there is a long history of cooperatives, harvest operations. The major part of the value added in particularly in Maharashtra, and 40 per cent of all sugar agriculture is not in crop cultivation, but in post-harvest is produced by cooperative sugar mills. In milk processing storage, transportation, processing, packaging, and cooperatives, while there is a history of over seven decades, marketing. Take, for example, a 50 gm roti served at an particularly in Gujarat, but in 2013, only about 16 per Indian home. It costs about Rs 3, but the farmer’s value cent of the marketable surplus milk was procured and added (income, that is, sale price less input cost) for the processed by dairy cooperatives. In no other commodity wheat is no more than Rs 0.30 of this. So, even at home, it are cooperatives as important in India. is 10 per cent of the final price. If the same 50 gm wheat is In the case of credit, the importance of cooperatives made into biscuits, the final price would be at least Rs 10 has come down over the years due to internal problems and the farmer’s share of value added falls to 3 per cent.

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Table 5.3 Share of cooperatives in national economy Particulars % for item by cooperative organizations Rural network (villages covered) 98 Total agricultural credit disbursed by cooperatives 16.9 Short-term agricultural credit disbursed by cooperatives 20 Kisan credit cards issued (43.66 million up to 31 March 2012 since inception) 38.3 Fertilizer distributed 36 Fertilizer production (4.598 MT for the year 2009−10) 28.3 Installed capacity of fertilizer manufacturing units (31.69 lakh MT, N Nutrient, as on 31 March 2010) 26.3 Installed capacity of fertilizer manufacturing units (17.13 lakh MT, P Nutrient, as on 31 March 2010) 30.3 Installed number of sugar factories (324 as on 31 March 2012) 48.2 Sugar produced (9.304 MT as on 31 March 2012) 39.7 Capacity utilization of sugar mills (as on 31 March 2012) 44.7 Wheat procurement (9.440 MT during 2012−13) 24.8 Paddy procurement (5.518 MT during 2011−12) 14.8 Retail fair price shops (rural + urban) 20.3 Milk procurement to total production 7.85 Milk procurement to marketable surplus 16 Ice cream manufacture* 45 Oil marketed (branded)* 49 Spindles in cooperatives 9.83 Handlooms in cooperatives* 54 Fishermen in cooperatives (active)* 23 Rubber procured and marketed* 18.5 Arecanut processed and marketed (3.65 lakh tonnes)* 15 Salt manufactured (18,266 MT)* 7.6 Source: National Cooperative Union of India, Indian Cooperative Movement–A Statistical Profile 2012, available at at http://www.ncui. coop/pdf/indian-cooperative-movement-a-profile-2012.pdf Note: * for previous years.

Table 5.4 Market shares agricultural cooperatives in the EU Country Dairy F&V Wine Meat Cereals Forestry Inputs Credit Savings France 47 30 52 52 85 Germany 70 45 33 30 54 41 Denmark 95 18 90 58 Netherlands 83 57 35 54 87 40 Belgium 50 72 20 40 UK 50 40 25 25 30 Ireland 60 70 65 65 Sweden 95 40 60 70 Finland 96 70 34 40 34 Austria 94 20 65 67 Italy 38 41 70 15 17 Spain 40 15/45 50 30 35 70 66 Portugal 82 45 49 Greece 55 40 40 Source: COGECA, EU-Federation of Agricultural Cooperatives.

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Thus the conclusion that farmers need to participate in Various bodies deliberated on it, most notably the the full value chain to benefit from agriculture and they Brahm Dutt Committee established by the Planning need to be aggregated into large numbers to be able to Commission in 1989. This led to legislation of a new own parts of the value chain. For this, they need capital generation of ‘mutually aided’ (as against state-aided) and capability. cooperatives. The first of these was in Andhra Pradesh Many visionaries saw this and some like the in the form of the Mutually Aided Cooperative Societies economist D.R. Gadgil were able to persuade a farmers’ Act, 1995, which was subsequently replicated in nine leader Bala Saheb Vihke-Patil to establish sugarcane more states. However, there was resistance to amend the crushing factories in the cooperative sector. Another cooperative law in several states, including Tamil Nadu, visionary farmer leader, Tribhuvan Das Patel, who had Maharashtra, Gujarat, and Uttar Pradesh, which had a successfully organized dairy farmers of Kheda district of large number of cooperatives. Gujarat into the Anand Milk Union Ltd (AMUL), was looking to build the capacity of the institution to take on Producer Companies Legislation as an Enabler competition from the private sector. He hired a young professional in 1948—Verghese Kurien. By 1965, with Veghese Kurien kept up his search for a better way to free the support of the government, Kurien managed to cooperatives from the yoke of the bureaucratic−political muster capital for taking the AMUL pattern cooperative nexus. With this in view, he persuaded the Government of all over India through the ingenious means of selling India to constitute a High Powered Committee. The noted free imported milk powder and using the proceeds economist from Gujarat Yogendra Alagh was appointed to finance the organization of dairy cooperatives and the Chair and its main terms of reference were to: enabling them to set up procurement and processing • examine and make recommendations with regard to value chains. These capital-intensive units were owned framing legislation which would enable incorporation by district milk cooperative unions and state-level of cooperatives as companies and conversion of dairy cooperative federations, using a common brand existing cooperatives into companies; and per state, such as Amul in Gujarat, Vijaya in AP, Aavin • ensure that the proposed legislation accommodates in Tamil Nadu, Saras in Rajasthan, Parag in UP, and the unique elements of cooperative businesses within Sudha in Bihar. a regulatory framework similar to that of a private For capability creation, Kurien established the limited company. Institute for Rural Management (IRMA) at Anand, with the hope that most of its graduates would work with the Recommendations of the Alagh Committee led to the cooperative institutions. Initially, IRMA postgraduates producer companies legislation coming into force on 6 joined cooperatives, but at that stage they were fresh February 2003 as Chapter IX A of the Companies Act, youngsters and it took at least a decade before they could 1956. Prior to this, the Companies Act, 1956, recognized get into significant roles. By that time, most had left the only three types of companies, namely, companies limited sector. To build capability of the existing managers, IRMA by shares (sub-divided into public limited and private then started the one-year programme for practicing dairy limited companies), companies limited by guarantee, and managers, but it was only a partial success. One major unlimited companies. reason was the reluctance of state dairy cooperatives, run A producer company is a business enterprise registered by a nexus of bureaucrats and political leaders, to build under the provisions of Part IX A of the Companies managerial capability in their cooperatives, lest it would Act, 1956, and is run on the basis of Mutual Assistance challenge their ability to use the cooperative for their own Principles (Sec 581G(2)), namely, purposes. • voluntary membership, To enable the cooperative form of enterprises to • voting right independent of share holding, continue to serve rural producers in the increasingly • elected board from amongst members, competitive scenario, and to grow along the value chain, a • limited return on share capital, and need for an alternative institutional form was recognized. • distribution of surplus on patronage base.

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Any ten or more individual producers or two or more shares; and patronage-based benefits with the flexibility producer institutions or a combination of both may form and autonomy of company law. The law ensures active a producer company. A producer company can also be member participation in business and management by formed by conversion of a cooperative having its objects/ specifying the following: activities (directly or indirectly) beyond a state. Producers’ • Active members participate in decision-making companies are therefore like cooperatives registered process, and are eligible to elect and to be elected as under the Companies Act. Similar legal frameworks are members on the Board in place in many countries, such as the US, Switzerland, • Voting rights are based on patronage Italy Denmark, Norway, and New Zealand. • Participation in business is required for continuance of The following terms are defined in the legislation: membership • Primary produce—Produce of farmers, arising from • There is voluntary amalgamation and division in agriculture (including animal husbandry, horticulture, business interest and pisciculture) or any other primary activity or • The Board is elected by the producer company without service which promotes the interest of the farmers. any government interference • Producer—Any person engaged in any activity • There is flexibility with regard to joint ventures, connected with or relatable to any primary produce. alliances, and mergers and acquisitions. • Producer institution—A producer company or any Lesser bureaucratic and/or political interference is other institution having only producer or producers ensured by specifying that no political nomination is or producer company or producer companies as its possible by the state government nor is there any scope members, whether incorporated or not. for equity share capital from the government and no • Member—A person or a producer institution admitted provision for supersession, providing exemption, issue of as a member and who retains the qualifications directive, compulsory amendments, etc. A comparison necessary for continuance as such under Sec 581A on key features between FPCs and cooperatives can be (d) of the Companies Act, 1956. (Sections have been seen in Table 5.5. renumbered in the 2013 amendment of the Act.) • Active member—A member who fulfills the quantum and period of patronage as may be required by the Programmes for FPC Support articles under Sec 581A(a). It took several years for promotional agencies to recognize Member voting provisions: the value of organizing farmers into FPCs under the new legislation. The first few producer companies were • For a company formed of individuals, a member shall made by developmental non-governmental organizations have single vote irrespective of shareholding as per Sec (NGOs), which are more prone to innovation. This 581D(1)a. effort was led by Action for Social Advancement (ASA) • Where the company is formed exclusively by producer and Professional Assistance for Development Action institutions, the voting right may be computed on (PRADAN) in Madhya Pradesh, where the state the basis of participation in the business as per Sec government’s District Poverty Initiatives Programme 581D(1)b. took up the formation of nearly a score of FPCs with the • For a company formed of individuals and institutions, help of NGOs. In Gujarat, DSC and Aga Khan Rural there shall only be a single vote for every member as Support Programme (AKRSP) formed FPCs of farmers per Sec 581 D(1)c. they were working with. BAIF also established a producer The articles may restrict the right of voting to only company of mango and cashew growers in Vansda in those members who patronize the company. The south Gujarat. In a few cases, such as Vishakhapatnam legislation combines the institutional and philosophical in Andhra Pradesh, an existing dairy farmers’ cooperative strengths of cooperatives such as the ownership being converted itself into an FPC. Rangasutra was organized limited to users; limited interest on shares; no trading of around the craft groups of URMUL in Rajasthan.

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Table 5.5 Comparison between FPCs and cooperatives Features Producer companies Cooperatives Principles Mutual assistance Cooperative principles Registration Cooperative Societies Act Companies Act Membership User-members Non-users also Relationship with other corporates/ Transaction based Producers and corporate entity can together float a business houses /NGOs producer company Voting rights One member one vote/patronage voting One member one vote/patronage voting in parallel Acts Professional management Provision for experts in Board No such provision Role of registering authority Significant, overbearing Minimal, to ensure procedural and reporting compliance. Borrowing power Restricted More freedom and alternatives Nominees on Board No such provision Provided Audit by Chartered accountant Government Election held by Incumbent Board RCS Area of operation Not restricted Restricted Registration Central Act State Act Source : Murray (2009); some modifications made by the author.

The fillip to the movement came when Pravesh Sharma, to manage functions such as bulk purchase and supply an IAS officer of the Madhya Pradesh cadre, who had served of inputs to members and aggregation of produce for as Principal Secretary, Agriculture and Cooperatives in MP, collective marketing. Help came from Ashish Mandal of joined as the CEO of the Small Farmers’ Agri-business ASA, who had promoted many FPCs in MP, who was Consortium (SFAC) in Delhi. Though the SFAC had nominated to be a member of the National Advisory been established as far back as 1994, it was only running a Council. He carried out a number of conversations, small venture capital scheme under which agro-processing and based on those inputs and his own experience of units run by private entrepreneurs were financed. In 2011, forming and hand-holding FPCs, made a presentation to the Finance Minister announced a budget to promote the NAC, seeking a broad range of support, which was vegetable-growing clusters. The task was given to the SFAC endorsed by the NAC. This then resulted in the SFAC and it set up the National Vegetable Initiative around getting funds for launching an Equity Grant Scheme and Urban Clusters (NVIUC). The methodology under this a separate Credit Guarantee Fund. Under the former, an programme was to organize vegetable farmers into FPCs FPC which has raised Rs 10 lakh of share capital from its and the task was given to NGOs selected through an members can get up to Rs 10 lakh as a matching grant open bidding process. The NGOs were paid to hire staff to double its equity capital. Under the second scheme, and carry out the organizing and hand-holding activity the SFAC offers an 85 per cent guarantee for a bank loan over a period of two years. Subsequently, another similar of up to Rs 1 crore to the FPC. Both these schemes are programme was added under the National Accelerated poised to take off in this fiscal year. Pulses Production Programme. This resulted in a large Among non-government agencies, the Rabobank number of FPCs being promoted. The SFAC’s website Foundation, Ananya Finance, and the Indian Grameen lists 379 registered producer companies as on 31 July Services’ (IGS) Livelihood and Microfinance Promotion 2014. However, practitioners assert that over 600 have (LAMP) Fund of the Basix Social Enterprise Group been registered or will be registered before 31 March have been supporting FPCs with loans. National Bank 2015. Another 100−200 have been formed under other for Agriculture and Rural Development (NABARD) has programmes. recently announced its intent to support FPCs with a Having organized the FPCs, with famers contributing combination of capacity-building funds as well as loans the initial share capital, while the promotional costs and refinance to banks who lend to FPCs. But will were paid by the SFAC, it became necessary to provide these schemes generate the support needed? To answer FPCs with capital for further growth and the capability that question we have looked at the generic capital and

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0 Year 1 Year 2 Year 3 Year 4 Year 5

Input sales Credit facilitation Output marketing Processing

Figure 5.1 Stages in the evolution of an FPO (figures in Rs million)

capability requirements as an FPC evolves (see Figure 5.1). Each of these functions requires additional capital and The four key functions of FPCs are: additional capability among the Board members, the general body members, and the staff of the FPCs. • bulk purchase of inputs for supply to members; In Figure 5.2 and Figure 5.3, we show what inputs • facilitation of credit, insurance, and extension services; are needed in the form of capital (grants, debt—soft and • aggregation of produce for collective marketing; and commercial loans, and equity) and what other inputs • processing of produce for value added outputs. are needed to build capacity (training, exposure visits,

10. Prots from INR 100 million value-added output sales 9. Term loans from banks for processing plants 8. Trading prots from produce sales 7. Working capital loan from commercial banks 6. Trading prots from input sales 5. Working capital loan from social investors

4 . Equity top-up support 3. Capacity-building support grants to FPOs 2. Farmers’ initial equity INR 1 million 1. Initial organizing grants to NGOs

Figure 5.2 How FPOs can build capacity in 10 steps

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11. Training members in 10. Board members holding the Board accountable learn processing business 9. Training the Board in the processing business

8. Board members learn these businesses 7. Training the Board in the input sales and output marketing business 6. FPO Board members are elected 5. Awareness building of members about FPO

4. Mass members are mobilized 3. Capacity-building support to lead farmers 2: Potential lead farmers are identied by NGO 1. Initial organizing by outside NGO sta

Figure 5.3 How FPOs can build capacity in 11 steps

hand-holding, system-building, governance practices, studied two companies which were in sectors other than etc.). The two figures are self-explanatory, and what agriculture—Rangasutra in crafts and Masuta in tussar is important to note that the journey of the 21 steps silk. Murray talked of a three-step evolutionary process (10 + 11) will normally take any FPC at least seven years, of FPOs—initially as aggregators, later as intermediaries if it has to be done in manner that will build an abiding between farmers and processors, and finally as processors institution. Remember it took Verghese Kurien 16 years themselves. He ended with a ‘hope’ that banks would to go from AMUL to the NDDB and another 16 for finance FPOs in a big way. the NDDB to complete ‘Operation Flood’ to replicate One of the most comprehensive studies on producer AMUL in 120 districts of the country. companies in India was carried out by Amar K.J.R. Nayak of Xavier Institute of Management Bhubaneswar (XIM), with NABARD sponsorship in 2013. The purpose of The Record of FPCs So Far this study included the following: (a) to understand the Studies current status of the producer companies in India in terms of organizational design and structure of ownership; (b) to One of the first comprehensive studies on producer understand the performance of the existing producer companies was carried out by PRADAN in 2006. This companies on various business parameters and in terms study dealt more with the operational problems of of improving net incomes and market power of small establishing producer companies, many of which had to and marginal farmers; and (c) to determine the problems do with the unfamiliarity of officials and bankers about this faced by these companies and the possible mechanisms to new legal form. The next important study was by Murray address the constraints being faced (Nayak 2013). (2009), who studied nearly 25 producer companies, The study began with a list of 258 producer of which a majority were in Madhya Pradesh. He also companies, collected secondary data in detail on 55 of

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those, and then 15 of those were studied through field be optimally designed on the various design parameters visits. The main findings are that producer companies of an organization. The key design variables are size, already represent a huge diversity in terms of size, from scope, technology, management, and ownership, and those with a few hundred members to some with over a these variables need to be simultaneously optimized for million. In terms of economies of scale, most producer sustainability’ (Nayak 2010). companies have gone into at least the first few links of In a recent comprehensive paper, two master’s students the value chains so as to add value. Few have gone into from the Lunds University Puzniak and Cegys, studied multiple commodities. In terms of technology, again seven sets of producers companies promoted by different they represent a spectrum—from using the traditional agencies. They state: ‘[T]he producer company is found to to adopting modern technology. be combined with other institutions—predominantly with Management deficit exists in most producer companies cooperatives and self-help groups—which try to create and is being made up by certain internal or sectoral platforms for ownership and governance of the producer training programs such as the SFAC-funded XIMB company by a large collective membership of small programme Management@Grassroots. Marketing efforts producers’ (Puzniak and Cegys 2011). Their paper explores again span a range of methods from rural sales to local ‘how the latent potential of these institutional structures retailing to using distributors to reach distant markets. relevant to the aspirations of sustainable development’ could The study identified the key drivers for the formation be unleashed and identifies three key constraints—capital, of producer companies: (i) to create a good alternate capacities and facilitation’ (Puzniak and Cegys 2011). delivery system to supply external agricultural inputs to farmers on time and at government prices and (ii) to Practitioners’ Feedback and Case Studies directly sell the surplus produce of farmers in the market so that farmers get better prices for their produce. The author spoke to a number of practitioners from Nayak (2013) identified the challenges of producer different promotional organizations to understand what companies in the following areas: (a) social capital formation they thought of the FPCs, the journey so far, and the in producer companies; (b) governance and management future expectations and challenges. capabilities of producer companies; (c) scope and scale of According to Sankar Datta, an expert in organizing producer companies; (d) market landscape of producer farmers’ collectives and building their capacity, companies; (e) ownership issues in producer companies; One of the problems that a user-owner organization like farmers’ (f) convergence of resources from district administration; producer company faces is the duality of interest of owners and users. (g) institutional architecture of producer organizations in As an owner, the share-holder farmer wants to maximize surplus the district; and (h) financial capital formation of producer (not on equity but on their patronage) even if that means paying companies. lower to the suppliers. But, as a user, he wants the best price, and To overcome these challenges, Nayak recommends resolving this dichotomy makes the role of the leader very critical. greater upfront effort in social capital formation and Secondly, these organizations emerge when there is a market in capacity building; developing ecosystem services failure. As markets become more competitive, the undue margins which include emergency credit, consumption credit, start disappearing. When the marginal return from selling to a production credit, retail services on consumables, collective starts becoming lower than the cost of collective action, and other agricultural production support services; these initiatives start fizzling out. As a result, cooperatives which have functioned very well in the first few years start under- basic physical infrastructure; taking up ‘climate-smart’ performing after a few years. agriculture and mitigating the risks of or adapting to climate change; convergence of knowledge and resources Another important point is that size has a significant implication at the level of the producer company, including the for the design of the collective enterprise. But, apart from the size of the group they have also looked at some of the creation of a district and below level architecture for other conditions that are necessary for collective action to be producer companies, so that they do not come up as sustainable. Finally, if FPCs cater to only small and marginal islands and later get overwhelmed. His most important farmers, they start facing the problem of breaking-even when recommendation is that ‘producer organizations need to the project funding support end. That is the time a producer

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collective ends up enrolling (or failing to enroll) large farmers. Jacob asserts that most interventions by FPOs begin With this group coming in the dynamics of governance, which in the high volume, low margin business (aggregation, is designed with patronage cohesiveness within a homogenous basic cleaning/processing, and sales of commodities) small farmer group starts cracking, unless there are other socio- and stay there as FPOs are not able to procure or rent political conditions create conducive environment.3 high-end processing equipment to compete in product Girish Sohani, CEO of BAIF, shared that they have business. Scale and margins seem to be mutually exclusive formed about 15 FPCs and another 10 are associations/ categories for the FPOs and profitability seems to be an cooperatives. They were among the pioneers in forming unachievable dream. What FPCs need is patient capital to an FPC. According to Sohani, there is an inherent tension support basic infrastructure including warehouses, early between the economic viability of an FPC (which requires stage staffing, and capacity building. On the capability a larger and larger scale) and the Board and management’s side of FPCs, Jacob John4 says that people begin to leave accountability to the members (which gets more and the organization after it reaches the plateau because the more difficult with a larger scale). He suggested a two-tier spearhead team aka ‘professional management’ cannot architecture for this—form associations or cooperatives see personal growth. He recommends encouraging young at the local level and then have an FPC at the next level. people to continue working in the sector through better This is what BAIF had done in the case of the Vasundhara training and capacity building and creating personal Producer Company, which is the apex body for processing growth opportunities within the sector for both outside and marketing mango and cashew nut products, with professionals and local talent. a turnover of over Rs 6 crore per annum. In contrast, According to Mihir Sahana, CEO of Basix Krishi in the Jawahar block of Thane district, they only have Samruddhi Ltd,5 ‘the FPO is a structure which is too associations of flower growers, as no processing is needed. far off from members and hence does not promote Sohani cautioned, however, that the capacity building that collective action. Most of the FPO are covering 20–40 is required takes several years of hand-holding. villages which is too big a geography for promoting Trilochan Sastry, Professor at Indian Institute of collective action. The guidelines must clearly restrict an Management Bangalore, who has organized the CCD FPO to a maximum of 3−5 villages for organic linkage set of commodity producers’ cooperatives in the and interaction among members and also do critical Anantapur and Adilabad districts of Andhra Pradesh/ functions collectively. As is seen in the Amul dairy Telangana, felt that FPC legislation does not make cooperatives, the Mulkanoor credit cooperative and adequate provision for building the capital base of even in [well-functioning] SHG Federations, there these organizations and they thus necessarily remain at is a legally structured body at the village level which a disadvantage. He lamented the lack of availability of is involved in many collective activities like milk capital, even for financing normal operations such as collection, logistics, payments, etc. We may need to buying and selling, leave alone for building processing look at forming societies at a panchayat level (3−5 facilities. Jacob John, a practitioner who has worked villages) with specific tasks that are performed at a with Sastry’s FPCs, identified the following reasons why regular interval’. FPCs hit a plateau. FPCs start well as they run on the Hence, in FPO structures too we may need to relook enthusiasm of a small team and leadership and their at forming some formal body other than FIGs which can scale of operations is small. But as the initial funding meet and undertake some regular activity at the village for a ‘pilot’ or the seed capital/ start-up funding dries level. The FPO may then undertake other function up, working capital (initially arranged through friends like storage, capacity building and technical training, and personal contacts) becomes a constraint. Successful processing, chilling other management functions, etc. FPCs are expected to generate their own sources of funds These are to have the same structure as unions. It is also but with the exception of SFAC these are not available. felt that FPCs are not a good enough structure to be Even NABARD loans are given against collateral able to market their produce/establish market linkages security. Investment in processing and packaging is to the advantages of its members as the numbers rarely possible at the single FPC level. and volume initially is not high enough and also the

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capability and manpower required to take out this function may not be viable to support an FPC as is Case Study 1 Samarth Kisan Producer Company structured now. Limited, Agar, Ujjain District, MP Ram Sundar Roy and Vasumathi are both Vice- Ram Singh, CEO of Samarth, recalled that the producer Presidents in the Indian Grameen Services (IGS), a company was formed under the aegis of Madhya Pradesh promotional organization of the Basix Social Enterprise District Poverty Initiatives Project (DPIP) in 2006. It has 6,500 Group, which has helped organize and register 45 FPCs farmers as members. The authorized capital of the company is Rs 15 lakh while the paid-up capital is Rs 9.17 lakh. The and is in the process of helping another 40 to be formed. company has received a fund of Rs 25 lakh from the Ministry They felt that it takes between four to five years for an of Rural Development. The state government has provided 2 FPC to stabilize. Ram Sundar made the point that FPCs ha land to the company where it has constructed a warehouse. producing commodities, which can be stored such as The CEO said that out of 6,500 farmers, the company pulses and oilseeds, will stabilize faster as compared to is now able to provide direct services to 3,200 farmers and those FPCs which produce perishables such as vegetable they are trying to mobilize more working capital to be able and milk. Once the SFAC promotional support ends, to reach to all the farmers. Among the members, 70 per the resource institution which formed the FPCs has a cent are landholders, while 30 per cent are landless and are doing agriculture by taking land on lease. The company has dilemma—incur ongoing promotional costs on its own taken licence for seed production and input trading (seeds, or abandon the FPC early. fertilizers, and pesticides). Both Ram Sundar and Vasumathi felt that the SFAC The main crop of the region is soybean and wheat. Samarth handholding support needs to continue for a much has taken licence from Agriculture University for seed production longer period. Of course, there can be a system of rating and is producing foundation and certified seeds from the breeder or self-qualification in terms of share capital gathered seeds. Seed production has helped the farmers to earn premium, by farmers, level of active involvement of the Board and and it has also helped the 56 service providers of the company. Service providers are working on a commission basis for the the members, and ability to attract other programmes. company. They act as a bridge between seed companies and the Another alternative could be for the SFAC to ‘reward’ farmers and earn commission on their services. The turnover the better-performing FPCs with programmes like the of the company has reached Rs 1.89 crore in recent times. The Pulses Procurement Programme-Minimum Support company has appointed eight staff including the CEO. Price (PPP-MSP), which benefit their members as well as build capital for the FPC. Another option could be producing seeds for use by the farmer members as Ashish Mandal of ASA, who had advocated the cause well for sale. One more option could be setting up of of FPCs at the National Advisory Council (NAC), on warehouses for non-perishable commodities and using the basis of their experience of promoting and supporting those to facilitate provision of post-harvest bank credit more than 40 FPCs, said that there should be an FPCs, to farmers through warehouse receipts, as also earning said that support cell of high calibre professionals at the income from warehousing. On processing, both Ram level of 30−5,000 farmers for functions such as information Sundar and Vasumathi felt that it cannot be done at the technology (IT) for accounting and management level of an FPC as the produce of 1,000 farmers is too information system (MIS), capital raising, and market little for anything other than primary processing. Ram linkages with agro-processing corporates. In this context, Sundar suggested that if processing units are established he gave the example of a Rs 2,000 crore basmati rice export at the regional level, clubbing 10–20 FPCs may be house, which saw major rejections of its consignments viable, but even here it is best in the initial few years to to the EU as the pesticide residue was more than the undertake ‘job work’ of franchised production for well- permissible level. This company is now keen to work with established brands, and only after mastering that should FPCs as (i) it can systematically engage with farmers and FPC federations go into their own branded marketing. educate them about the crop specifications the company Vasumathi stressed the need to train local youth to work needs and (ii) there is traceability in case of any problems as FPC staff and FPC CEOs, who should ideally be detected after procurement. Thus FPCs can meet the from the local area. corporate need for a reliable supply chain with traceability.

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Case Study 2 PPP-MSP by Ajaymeru Kisan Samruddhi producer company6 As part of the 2010−11 budget, the Finance Minister announced a scheme for establishing 60,000 ‘pulses and oilseeds villages’. Implementation of this programme was given to SFAC, an agency set up by the Ministry of Agriculture, Government of India. The SFAC engaged many agencies around the country for this work and one of the selected agencies was the Indian Grameen Services (IGS), part of the Basix Social Enterprise Group, engaged in rural livelihood promotion. In late 2011, IGS was asked to work in the Kekri tehsil of Ajmer district as most of the farmers in the area grew pulses—black gram (urad), green gram (moong), and Bengal gram (chana) as these are hardy crops needing very little water. The IGS team led by its Rajasthan state head Dileep Gupta, 48, began going from village to village, talking to farmers in meetings, making them aware of the benefits of joining an FPC and motivating them to join. Ajaymeru FPC was registered in February 2013 with 1,167 farmer members, all of whom had paid Rs 100 as share capital, while about 300 had paid Rs 1,000 each. Baluram was elected as its President, Bhawani Singh, the Vice President, and seven other members as the Board of Directors. Om Niwas was appointed the CEO. An opportunity arose for the FPC when the SFAC was given charge of the Pulses Procurement Programme through the Minimum Support Price (PPP-MSP) by the Government of India and it contacted Ajaymeru. Ajaymeru procured 3,242 MT Bengal gram worth Rs 1,005 lakh from 975 farmers. The additional benefit to each of the farmer who sold his produce through Ajaymeru was about Rs 13,000. Ajaymeru facilitated farmers to realize the payment within seven days of procurement. As compensation for the services rendered by Ajaymeru, SFAC paid Ajaymeru Rs 10.05 lakh at 1 per cent of the value of the total pulses procured. IGS also received Rs 5 lakh as compensation of its support rendered at 0.5 per cent of the value for managing the procurement. Ajaymeru increased its share capital by 49 per cent, and its membership increased.

Vigyan Vikram Singh, Vice President of Basix general instruction to treat FPCs on the same footing as Consulting, established 80 FPCs in 20 districts of Uttar cooperatives. Gouri Krishna, CEO, Basix Consulting, Pradesh for the UP Bhoomi Sudhar Nigam, under a reiterated this point, when she said that in Maharashtra, World Bank supported programme. He said that the where Basix is promoting 56 FPCs under the World attitude of the state government is an important factor Bank’s Maharashtra Agricultural Competiveness Project in the success or otherwise of FPCs. For example, (MACP), the cooperation from the state government is even though IFFCO is willing to market its fertilizers of a much higher order. She also stressed the need for to farmers through FPCs, the state government has setting up of a specialized training programme or an not permitted this, in spite of the fact that there is a institute for training FPOs staff and CEOs.

Case Study 3 Bhangar Vegetable Producers’ Company The Bhangar Vegetable Producers’ Company (BVPC)7 Ltd has been formed in Bhangar Block II of the district of South 24 Parganas, West Bengal. BVPC has a membership of 1,750 marginal farmers (owning less than 1 ha of land). The farmers were mobilized to form the FPC by the State Department of Horticulture and Food Processing in association with Access Development Services (ADS). BVPC was one of the first companies registered under the National Vegetable Initiative for Urban Clusters. The BVPC has a total cultivable area of 18,800 sq. m which includes 94 poly shade net houses of 200 sq. m each. Five high-tech polyhouses (of 1,600 sq. m each) have also been constructed. For all this, the BVPC received a subsidy of Rs 121.65 lakh from the government of West Bengal as follows: vegetable cultivation (Rs 28 lakh); shade net (Rs 52 lakh); motorized vending cart (five Tata Ace trucks for Rs 10 lakh); vermicompost (1,200 HDPE units and 12 vermicomposting units at Rs 31 lakh) and integrated pest and nematode management (120 farmers used effective microorganisms). Where a farmer could grow 7,500 kg of crops in the open in a season, after the intervention, he is able to grow more than 9,500 kg. The size, range, and quality of vegetables is also far superior to what was earlier produced. Before the intervention, the farmer was earning Rs 22,000 in 140 days on an average. Now the same farmers earn Rs 85,000 in 120 days. For future growth, the BVPC has submitted a proposal to the Food Processing Industry and Horticulture Department of West Bengal for establishing a sorting grading centre (Rs 7 lakh), a packhouse for Rs 31.75 lakh, purchasing six vending carts (Rs 75,000), and six refrigerated carts of 6 MT capacity each (Rs 24 lakh). (Continued )

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Case Study 3 (Continued ) According to the team involved, the key reasons for success of the BVPC include the following: 1. Small steps taken by the project team at the early stages towards building farmer confidence and allaying their scepticism. 2. The added transparency of formal bank accounts opened in the name of each FIG increased the confidence of farmers in the project. 3. Support received from local government functionaries and banks in the critical initial stages was an important factor for success. 4. Pooling of funds by the members through savings and contributions, against which the BVPC could avail of bank loans. 5. Land pooling made it possible to use improved technologies that could not have been used in small individual holdings. 6. Improved technology gave the farmers a huge edge over other producers and improved the quality of their produce. This ensured productivity increases without burdensome costs of production for small farmers. 7. Market research and awareness about cost of production and selling prices of other farmers helped the BVPC arrive at decisions about crop choices and marketing models. 8. Proximity to a large market with capacity to purchase high-value vegetables was critical. 9. The ability of the PC to sell its produce directly to the consumer was its biggest advantage without having to give up the margins to intermediaries. 10. Providing a comprehensive, end-to-end solution to farmers.

THEORETICAL FRAMEWORK—WHAT of selective incentives, the incentive for group action MAKES AN FPC HIGH-PERFORMING? diminishes as group size increases, so that large groups are less able to act in their common interest than small The Logic of Collective Action ones. The book concludes that not only is collective action by large groups difficult to achieve even when they In the book The Logic of Collective Action (1971 [1965]), have interests in common but also situations could occur Mancur Olson8 challenged accepted wisdom in his day that: where the minority (bound together by concentrated selective incentives) can dominate the majority. • if everyone in a group (of any size) has interests in common, What are the implications of Olson’s work on the design then they will act collectively to achieve them; and of high-performing FPCs? The first is to ensure that FPCs • in a democracy, the greatest concern is that the are not too large in number. However, the question is how majority will tyrannize and exploit the minority. large is ‘too large’—ten, one hundred, one thousand? This The book argues instead that individuals in any group dilemma has been addressed by enabling FPCs to have attempting collective action will have incentives to ‘free ‘producer institutions’ (PIs) as primary members, where ride’ on the efforts of others if the group is working to PIs can be unincorporated groups as small as five or ten provide public goods. Individuals will not ‘free ride’ farmers. Thus, farmers can relate to PIs because of the small in groups that provide benefits only to active participants. size of PIs. As for PIs having the right incentives to relate to Pure public goods are goods that are non-excludable and contribute to the FPC, the provision for voting rights (i.e., one person cannot reasonably prevent another from of PIs being unequal (in proportion to patronage/usage)9 consuming the good) and non-rivalrous (one person’s ensures that those PIs which patronize/use the cooperative consumption of the good does not affect another’s and more have more say in the management of the FPC. vice versa). Hence, without selective incentives to motivate participation, collective action is unlikely to occur even when Lessons from Management of Common-pool large groups of people with common interests exist. Resources The book noted that large groups will face relatively high costs when attempting to organize for collective Common pool resources (CPRs), which were traditionally action, while small groups will face relatively low costs, well-managed, have largely deteriorated over the years. and individuals in large groups will gain less per capita This led some scholars to posit that there was going to of successful collective action. Hence, in the absence be an inevitable ‘tragedy of commons’ (Garett 1968).

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But empirical studies showed that CPRs continue to What are the implications of Ostrom’s work on the be well-managed in many disparate situations. Based design of high-performing FPCs? The first is to ensure on a project to identify and classify hundreds of these that FPCs should have well-defined boundaries; in examples, Ostrom (1990) delineated how self-organized other words, non-member farmers should not get regimes manage common-pool resources CPRs. In a the same benefits as members, such as lower-priced review paper, Cox et al. (2010) summarize the principles collectively bought inputs or better prices for collectively well for our purposes as follows: sold output. Principles 2 and 3 tell us that we should adapt FPC articles to their contexts, for instance, based Principle 1: Well-defined boundaries. This principle originally on commodities. stipulated the presence of well-defined boundaries around The importance of monitoring emerges again and we a community of users and boundaries around the resource have already said so earlier in response to the classical system this community uses. Each component helps to economic critique of collective firms as against joint stock internalize the positive and negative externalities produced companies—both are run by managers and elected Boards by participants, so they bear the costs of appropriation and who need to be monitored. The lesson from Principle 5 receive some of the benefits of resource provision. (graduated sanctions) is built into FPC legislation, which Principle 2: Congruence between appropriation and provision permits voting rights only for active members, thereby rules and local conditions. The first condition is that both disenfranchising inactive ones. Similarly, by permitting appropriation and provision rules conform in some way to local conditions; the second condition is that congruence unequal voting rights across PIs, it ensures that those exists between appropriation and provision rules. We found PIs which are doing little business with the FPC have very strong empirical evidence for both principles. proportionately less say in the affairs. Finally, the concept Principle 3: Collective-choice arrangements. Most individuals of nested enterprises has already been used by both dairy affected by the operational rules can participate in modifying and credit cooperatives in India. the operational rules. Principle 4: Monitoring. Like principles 1 and 2, we Are Collectives Not as Efficient as Profit treated principle 4 as two sub-components. Principle 4A stipulates the presence of monitors, whereas 4B stipulates Maximizing Firms? the condition that these monitors are members of the community or otherwise accountable to those members. Apart from the argument we saw earlier that collective firms are disadvantaged in raising capital, there is a Principle 5: Graduated sanctions. Principle 5 stipulates the efficacy of graduated sanctioning systems. Sanctioning general view in the economics literature that collectives deters participants from excessive violations of community are not as efficient as joint stock companies. For example, rules. Graduated sanctions progress incrementally based Armen Alchian and Harold Demsetz (1972) asserted that on either the severity or the repetition of violations. in non-profit corporations, colleges, churches, country clubs, Graduated sanctions help to maintain community mutual savings banks, mutual insurance companies, and ‘coops’, cohesion while genuinely punishing severe cases; they also the future consequences of improved management are not maintain proportionality between the severity of violations capitalized into present wealth of stock-holders. (As if to make and sanctions, similar to the proportionality between more difficult that competition by new would-be monitors, appropriation and provision rules from Principle 2. multiple shares of ownership in those enterprises cannot be bought Principle 6: Conflict-resolution mechanisms.Principle 6 states by one person.) One should, therefore, find greater shirking in … that systems with low-cost conflict resolution mechanisms mutually owned enterprises. are more likely to survive. Bruno Jossa (2009) discusses the critique of cooperatives Principle 7: Minimum recognition of rights. Principle 7 stipulates that external government agencies do not challenge implied in Alchian and Demsetz’s argument that efficiency the right of local users to create their own institutions. is maximized when a proprietor managing the firm and Principle 8: Nested enterprises. Principle 8 states that in watching the labour force at work is the residual claimant successful systems, ‘governance activities are organized in of surplus. He concludes that their critique does not hold, multiple layers of nested enterprises’. and his basic argument is that cooperative firms vesting the monitoring function in the elected Board will not be

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less efficient than capitalistic firms in the same situation. cooperative as having a high opportunity cost, given In practice, we know that both joint stock companies as the money they contribute to the cooperative could well as cooperatives (and FPCs) will face the principal− alternatively be invested in their own operations The user- agent problem where the shareholders (principals) have owner principle also has implications for a cooperative to manage through two sets of agents (the elected Board) manger’s attitudes towards and propensity to take on and further through appointed managers. Thus as long risk. Cooperative managers may view the cooperative as we ensure that the right monitoring systems and principle of risk-sharing and mutual responsibility as an incentives are in place for the management through formal insurance policy, prompting them to assume more risk Williamsonian (2002) contracts, there is no reason why and borrow more heavily than managers of IOF firms. FPCs should not work as well as joint stock companies. As a result, cooperatives may be less discriminating in their investments than IOFs, causing an overinvestment Do Cooperatives Suffer from Capital in assets and lower asset efficiency in generating profits. Other features suggest the contrary: that cooperatives Constraints? will rely more heavily on equity than debt to finance growth. A recent working paper by Iowa State University (Li et al. The user-owner principle creates an implied obligation to [2014]; see also Mazzarol et al. [2014]) deals with the return a cooperative’s profits to members. This happens classic question, whether, in theory, cooperatives suffer in two ways. First, current patrons are allocated a portion from capital constraints compared to counterpart of the current year’s savings (profits) proportional to their Investor Owned Firms (IOF). individual use. The cooperative pays a portion of this as The user-owner principle of cooperatives reflects cash to the patron-member and a portion is allocated to the requirement that cooperatives are capitalized by the member but retained as cooperative equity. A member’s and operated for the benefit of its users. In the case of equity accumulates over time as s/he uses the cooperative agricultural cooperatives, ownership requires that users but will be redeemed out to the member at some time have agricultural production at risk. The decision to use a in the future. …The illiquidity of member equity and cooperative is a joint decision by the producer to both use the uncertainty surrounding the timeframe for retiring it and invest it in, where the investment is the purchase member equity in a traditional cooperative has implications of the membership [shares] … [and also retained profits]. for management as well. … If the opportunity cost of this Thus, [it] not only limits the potential pool of investors capital is not realized, reliance on equity financing may … but also limits the rate at which equity can be acquired. be greater than in an IOF where stock is valued based on In a cooperative, equity is built through the allocation expectations and management outcomes. and retention of the cooperative’s profits to its members. It is obvious from the preceding discussion that An agricultural supply or grain marketing firm operating theoretical arguments are strong on both sides. The as an IOF can solicit investors without the requirement paper further states: ‘Evidence from existing studies of to buy products or deliver grain and does not rely on cooperatives relative to their counterpart investor owned equity accumulation through profits. Thus, the user- firms is inconclusive on the question of differences owner principle creates a capital constraint, further in capital structure’ (Li et al. 2014). Thus, for us implying that cooperatives’ short-term investments and practitioners, it best to let this question rust! perhaps longer-term ones, too, just rely more heavily on debt than do IOFs (Lerman and and Parliment 1990). High-performing Producers’ Cooperatives: Furthermore, members’ equity in a traditional Born or Made—The Indian Debate cooperative is non-marketable, non-transferable, and does not appreciate through changes in market values. Tushaar Shah conducted studies in IRMA during 1988−92 The illiquidity of equity exacerbates the problem of to understand why some cooperatives are sustainable equity financing if members, or potential members, do and not others. What needs to be done to create strong not view the cooperative as an attractive investment. producer cooperatives? In his book, Catalysing Cooperation Farmer members may view the investment in a (1993), he argued that there were ‘boutique’ versus ‘pattern’

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cooperatives. The example of the first being Mulkanoor (d) The governance structure is able to transmit and the latter being AMUL. The ruling hypothesis was that patronage cohesiveness in its transactions with the the policy environment makes or mars cooperatives. Shah’s operating system such that members’ patronage competing hypothesis was that incubating cooperatives interests are furthered (governance effectiveness). capable of exercising collective agency results in strong, They use value adding organization and technology; self-governing organizations. He defined collective agency organize business in ways that is rooted in the as intentionality; internal locus of control; and capacity character of the coop as a member organization, to act in a purposeful, goal-directed manner, and went on and adopt business practices that deepen member to assert that collective agency in a cooperative cannot be stake and allegiance. made to order; it arises out of the entrepreneurial energy, (e) The operating system is able to constantly devise the quality of the incubation process, and the design of the new and innovative ways to strengthen the loyalty going-concern. Table 5.6 shows how he contrasted the two. and allegiance of the members to the people’s Tushaar Shah then goes on to lay down certain organization (member responsiveness). principles for the design of high-performing cooperatives, Shah asks, how do we know a new design will lead to which we discuss now. robust cooperatives? He lays down four touchstones: (a) Internal locus of control as the secret of collective • They quickly internalize their locus of control and agency—Ditch the incubator and assert its agency develop capacity to exercise collective agency (b) They pursue purposes important to members; usually, • They self-replicate with little external support and this entails significant member wealth creation facilitation through value addition by providing unique range • They resist, fight, or mutate in the face of external stress of services. Focus on significant wealth creation for • They constantly innovate and provide new, value members by inventing new ways of doing core business adding services to members and diversifying meaningfully; have patronage-linked voting and constantly engage intense minority and Shah asserts that we have focused too much on getting overcome apathy of the majority a favourable policy environment, but very little on (c) Their governance ispatronage cohesive; they strike a mastering and propagating the art of incubating coops careful balance between equity and equality , between capable of exercising collective agency. Liberal laws are intense minority and apathetic majority (patronage necessary, but not sufficient. Quality ideation, incubation, cohesiveness); recognition of senior rights; members design: necessary and sometimes sufficient. He argues in have a right to recall a non-performing board/member; favour of a venture fund for incubating new coop forms, and member education promotes internal locus of vibrant centres for research on coop management, and a control. The CEO is accountable to the Board and reflective practice of coop incubation and design. has serious performance-linked rewards. Moreover, Some of Shah’s prescriptions seem not just difficult to the buck stops at the Board and General Body. implement but also impractical.

Table 5.6 Conventional thinking versus reality for cooperatives Conventional thinking Reality Successful coops follow ICA principles Successful coops opportunistically choose principles that strengthen their agency Successful coops seek to build egalitarian community They seek member centrality which is the litmus test of performance Small homogenous groups with equal resource They creatively use inequalities to strengthen collective agency endowments are ideal for coops Strong coops evolve bottom–up and not top–down With right incubation process and design, strong coops can be spread top–down Successful coops need charismatic leaders Incubated and designed right, strong coops can thrive with available leadership Coops need ‘fertile grounds’ to thrive Fertile grounds are helpful, but not essential (Sudha dairy) Coops need supportive laws to grow Successful coops either create their policy environment or manage it to their advantage

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• Internal locus of control as the secret of collective To make voting proportionate to patronage, these agency—Ditch the incubator and assert its agency. clauses should be amended to read as follows: The second one is in the same vein: • Voting rights of different members, whether individuals or producer institutions, shall be proportionate to the • [They] self-replicate without little external support member’s participation in the business of the company and facilitation. as at the end of the previous financial year, as per duly If indeed it was possible, even with some difficulty, for audited accounts. this to happen, we would see many more AMUL pattern dairy coops and Mulkanoor pattern credit coops. Having Provision for FPCs Issuing Preference said this, Shah’s insights must be kept in mind by any Shareholders practitioner interested in establishing high-performing FPCs on a sustainable basis. We have seen earlier in this chapter that access to capital holds back the evolution of an FPC along the expected business path. As equity capital can only be HOW CAN PRODUCER COMPANIES contributed by the farmer members, there is the option BECOME HIGH PERFORMING? of raising loans, but there are very few sources for this. Even NABARD has been seeking collateral security for Improvements in the Practice in Line with loans to FPCs, when in the early years they have no Theory and the Law significant assets. Banks are likely to follow the same requirement of collateral. The SFAC is obviating this It is amazing to see how well drafted the producer with the Credit Guarantee Scheme. In addition to this, company legislation is, if we use insights from theory. another source of funds that can be tapped is preference But, in practice, since most FPCs have been established shares from financial institutions and agri-business by people either from the NGO sector or from the companies. These shares can not only offer increasing cooperative sector, they have fallen for tokenistic equality. levels of dividends but also a premium on the face value Very few FPCs have been registered in a way that voting of shares at the time of redemption. This would increase rights across PIs be along proportion of business done the overall yield of preference share investors beyond with the FPC. Instead, most FPCs have one member, the expected yield on long-term debt. For example, a one vote provision and this leads to all the ills of the 10 year redeemable preference share with a face value of traditional cooperative. Rs 1,000 which earns an assured dividend of, say, 6 per cent in years 1, 2, and 3; 9 per cent in years 4, 5, and 6; Changes Needed in the Law and 12 per cent in the years 7, 8, 9, and 10, and is redeemed at say Rs 2,000 at the end of ten years, has an Member Voting Provisions effective internal rate of return (IRR) of 13.5 per cent which should be attractive to investors. Yet the cashflow The current law has the following provisions: is back-ended and gives enough time for the FPC to • For a company formed of individuals, a member shall grow and redeem. It can also redeem through the issue have a single vote irrespective of shareholding as per of a new series of preference shares. Sec. 581D(1)a • Where the company is formed exclusively by producer Protecting the Rights of Preference Shareholders institutions, the voting right may be computed on without Right to Vote the basis of participation in the business as per Sec. 581D(1)b One aspect of the law which comes in the way of • For a company formed of individuals and institutions, FPCs issuing preference shares is the provision in the there shall only be a single vote for every member as Companies Act which gives preference shareholders per Sec. 581 D(1)c. the right to vote like equity shareholders, in case the

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company makes losses. As preference dividend can be Currently agri-processing value added tax (VAT) is paid only out of profits, the preference shareholders paid on the entire value. There is a need to put forth an become severely disadvantaged unless they have the argument for such tax to be paid on ‘True Value Added’, ability to change how the company is run. This can be that is on the difference between the purchase price and taken care of by amending the ‘Producer Company’ the sale price. At present, VAT is on an offset basis, and chapter of the Companies Act and providing that in there is no VAT on incoming agricultural produce; the case a producer company makes losses for two (or full price is charged to tax. more) consecutive years, the preference shareholders shall have the right to move a resolution in the CSR Funding AGM/EGM of the company, seeking to elect another member in place of an existing member of the Board The Ministry of Corporate Affairs should consider of Directors and also another person in place of the including funding of FPOs as a type of permitted existing CEO. The voting on this resolution, however, activity under the Corporate Social Responsibility (CSR) would still be confined to the farmer members. In expenditure guidelines. At present, these funds can only the event the resolution is lost, the amount owed be given to non-profit organizations. to the preference shareholders shall automatically be converted into debt with a shorter maturity and higher interest rate than the implied IRR of the Ensuring the Life-Blood—Finance original offer. The availability of finance at various stages in the life- cycle of an FPC is as important as life-blood. Different Improvement in the Taxation Regime and types of finance are needed at different stages. This Supportive Policy is already shown in Figure 5.2. At the pre-formation stage, the promotional agency, usually an NGO or a Improvements in the Taxation Regime government development agency, needs to be financed for the cost of mobilizing farmers, building awareness Continuing with the idea of preference shares, and making them come together, understand how the the Ministry of Finance should consider granting FPC will be helpful to them, and contribute share exemption to investors on capitals gains arising from capital. any redemption premium on preference shares of FPCs. This would go a long way to encourage investors to put money into FPCs. Comprehensive Early Stage Funding On the issue of a lower corporate tax rate for FPCs, After the initial mobilization, FPC members elect office- the Ministry of Finance needs to be convinced that bearers and begin early stage activities such as bulk FPCs deserve to get a lower tax rate (along the lines purchase of inputs. Here, their share capital is unlikely that cooperatives were granted). In fact, there is a case to be enough, so the FPC would already need a working for a complete exemption of FPCs from corporate capital loan, or at least supplier credit, which may require tax, similar to taxation on agricultural incomes, since some guarantee from a third party such as SFAC or agriculture needs to be seen in the new paradigm of NABARD. They may consider supporting FPOs for not just crop cultivation but also the full value chain different types of needs at an early stage. All funds can be from seed to feed. At the least, FPCs should have given through a single window or it can be a single fund the same exemption that was extended four decades for the following purposes: ago to housing finance companies (HFCs) under Sec 36(1) (viii) of the Income Tax Act, 1961. Under this, (a) Grant fund to promotional agencies for initial if HFCs put up to 40 per cent of their profits in a mobilization and ongoing capacity building. long-term reserve, then to that extent the profits were (b) Loan fund for working capital for input purchase. exempted from tax. To give directly to FPOs through window or

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through organization such as Ananya, the IGS to have movable title, which ensures that the collateral LAMP Fund, etc. security moves along with the financing seamlessly. For (c) Grant fund to FPCs for staffing, basic infrastructure, example, when a bank gives a warehouse receipt loan to a and office expenses farmer for a crop, against the security of the receipt, the (d) Guarantee fund—SFAC is offering up to 85 per specific produce that the farmer stored gets commingled cent guarantee for loans to FPOs worth Rs 1 crore. with others’ produce, but its value remains in the farmer/ NABARD may consider setting up a guarantee bank’s name. Now, if this produce has to be bought by an fund beyond this. agro-processing company for milling, it has to first buy (e) Equity enhancement—This is already being offered the warehouse receipt from the farmer/bank and use its by SFAC in terms of matching the farmers’ equity working capital loan for it. Instead, the agro-processor of minimum Rs 10 lakh, with Rs 10 lakh equity should be able to treat the warehouse receipts it has grant. It would be good for NABARD to top this purchased as ‘inventory’ for the purpose of its working up by another Rs 20 lakh, for growing and well- capital loan. This would minimize the need for additional performing FPCs, if the members put in another paperwork. Rs 10 lakh, so that their equity base becomes Rs 50 lakh. Warehouse Receipts based Lending and Price (f) Shared infrastructure fund for support on IT Risk Mitigation applications such as warehouse management, price discovery, etc., built as cloud applications India has seen an upsurge of bank lending to agriculture which each FPC can access on a per-transaction through warehouse receipts. This has been facilitated basis and pay by use, thereby cutting capital by the enactment of the Warehousing Regulatory and expense for the FPC. The same could be said for Development Agency, which regulates warehouses, weather stations, price dissemination platforms, warehouse keepers, quality assayers, and warehouse over-the-counter (OTC) buy-sell platforms like receipt financiers, and ensures that warehouse receipts, www.krishidoot.com and state-level associations which have the status of negotiable instruments, are of FPCs. backed by proper security and collateral management (g) Research fund for documentation/research and to practices. build knowledge in the field, which would be given Commodity spot exchanges have started offering to selected institutions like IGIDR, IRMA, XIMB, OTC deals to reduce stock in authorized warehouses. But CAB, MANAGE, CESS, and the ILRT. one important aspect that is missing is the concept of ‘options’—a derivative contract which enables a market Encouraging Value-chain Financing under participant to hedge his risk against downside price Priority-sector Lending fluctuations. Typically, a producer can buy an option (for a small premium) to sell his produce at a particular The RBI guidelines on priority sector lending by banks price on a particular date irrespective of the prevailing already mention FPCs. This should be broadened to spot price. This hedges his risk in case the spot price falls include agri-input supply, agro-machinery rental/ unexpectedly. operation, agri-processing, packing, and storage and In the absence of options, to offer a downside cover transport units owned by FPCs into the ambit of to FPCs who use warehouse receipts for the first or agricultural priority sector lending. This is in recognition second time, NABARD should set up a Price Risk of the fact that crop production is only one step in the Cushion Fund. In the event the price of what they agri-value chain, and the only way crop production warehoused falls during the storage period, this fund can be made viable is if it is linked with the value would make up the loss by paying at least the same price chain. as was prevailing on the day of storage. The fund would Indeed, to allow the full benefit of value-chain financing encourage FPCs to use warehouse receipt finance more to happen, the RBI should encourage and permit banks extensively.

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CONCLUSION building, making it a double helix of 21 steps. This is the recommended evolutionary path for a high-performing It is still early days for the FPCs and a lot more ground FPC. needs to be covered before anyone can claim that they will enable India’s farmers to move from being merely NOTES cultivators to participants in the full agricultural value chain. If farmers have to partake of the value added 1. Classification/comments added by author. beyond the farm gate, they need to get organized and 2. The author is grateful to Arindom Dutta of Rabobank India perform those functions, including incurring the costs for pointing out this data. and bearing the associated risks. 3. Sankar Datta in an e-mail communication to the author, Various earlier studies, summarized in this report, as 2014. well as practitioners who contributed their insights to the 4. Jacob John’s PowerPoint presentation ‘Scaling the Plateau— author, all agree that the only way farmers can participate The View from Below’ (2014). 5. Mihir Sahana’s email communication to the author on the in the value chain is by getting organized into collectives— limitations of FPOs today (2014). whether cooperatives or FPCs is a matter of detail. Two 6. Excerpt from Dileep Gupta (2014), Case Study on PPP-MSP key constraints to building effective farmers’ collectives are through the Ajaymeru FPC. IGS. capital and capacity. Others have argued, and we agree, 7. Summarized by the author from Indranil Banerjee, Varun that if the ‘latent potential’ of the new institutional form Dhanda, and Ram Narayan Ghatak, Case Study on the called the producer company has to be realized, they must Bhangar Vegetable Producers’ Company, Access Development be facilitated to build their capital and their capacity. In Services, 2013. that respect, we differ from Tushaar Shah’s notion of ‘self- 8. The excerpt is from Wikipedia. 9. Where the company is formed exclusively by producer reliant soon after, if not at birth’ collectives. institutions, the voting right may be computed on the basis The additional insight of this chapter is that these of participation in the business as per Sec. 581D(1)b. two are not separate and parallel or even intersecting tracks, but are intertwined spirals, much like the double helix molecular structure of DNA (Figure 5.4). This REFERENCES visualization emphasizes the fact that progress along one requires the other to progress as well—capital and Alchian, Armen A. and Harold Demsetz. ‘Production, Information Costs, and Economic Organization’, The American Economic capacity must balance each other. The 10 steps for raising Review, 62 (5): 777−95, December 1972. capital must get interspersed with the 11 steps for capacity Birthal, Pratap S., Awadhesh K. Jha, and Harvinder Singh 2007. ‘Linking Farmers to Market for High Value Commodities’, FPOs Can build Capital and Capability in 21 Steps Agricultural Economics Research Review, 20 (Conference Issue): 425−39. Cox, Michael, Gwen Arnold, and Sergio Villamayor Tomás. 2010. ‘A Review of Design Principles for Community Based Natural Resource Management’, Ecology and Society, 4(4). Hardin, Garett. 1968. ‘The Tragedy of the Commons’, Science, 162 (3859): 1243–8. Jossa, Bruno. 2009. ‘Alchian and Demsetz’s Critique of the Cooperative Firm Thirty Seven Years After’,Metroeconomica, 60(4): 686−714, November. Lerman, Z. and C. Parliament. 1990. ‘Comparative Performance of Food-processing Cooperatives and Investor-owned Firms’, Agribusiness, 6: 527-40. Li, Ziran, Keri Jacobs, Georgeanne M. Artz. 2014. ‘Relative Capital Structure of Agricultural Grain and Supply Cooperatives and Figure 5.4 The double helix of an FPO’s evolution into a Investor Owned Firms’, Working Paper No. 14007, Iowa high-performing FPO State University.

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State of India’s Livelihoods Report 2014_Ch05.indd 108 20/11/14 6:46 pm Notes on Contributors

Sankar Datta is a senior management professional from the first batch of Institute of Rural Management Anand (IRMA), with an experience of more than three decades in working in the development sector, especially helping poor producers link to value chains. He was a member of the founding teams of PRADAN and BASIX, and was formerly a member of the Faculty of Indian Institute of Management Ahmedabad, IRMA, and Azim Premji University, and Dean of the Livelihood School set up by BASIX, a new generation educational institution delivering training in livelihood promotion, combining research and training, in collaboration with various institutions.

Vijay Mahajan founded PRADAN, a livelihood promotion NGO, in 1983. In the quest of scale and sustainability, he set up Basix in 1996, which has supported the livelihoods of over two million poor households, deploying over Rs 5,000 crore in loans and providing a range of livelihood promotion services along with savings and insurance to borrowers, thus moving from micro-credit to livelihood finance. Mahajan was a member and then Chair of the World Bank’s Consultative Group to Assist the Poor (CGAP). He is a Distinguished Alumnus of the Indian Institute of Technology Delhi and the Indian Institute of Management Ahmedabad, and a Fellow of the Woodrow Wilson School, Princeton University. He was named one among the ‘60 outstanding social entrepreneurs of the world’ at Davos in 2003.

Manas Ratha is Director of the Asia Social Business Impact Accelerator run by Impact Investment Exchange Asia (IIX) in the Philippines. He was Director at Dasra, leading Portfolio Management, the Dasra Social-Impact Leadership Program, and the Indian Philanthropy Forum. He has also worked with the investment bank Avendus Capital, advising growth companies in business services, media, and renewable energy on M&A and raising capital from large PE and VC investors, thereby gaining a deep insight into strategies and leadership styles that translate into scalable and valuable enterprises. He has started a VC-backed B2B eCommerce firm and was the chief operating officer at a high-end consumer electronics manufacturer with customers in 30 countries. A regular speaker at conferences and universities on a global scale, Ratha is an independent advisor to social enterprises in the health care, sanitation, and education sectors and has helped corporates and families become more strategic in their philanthropic efforts.

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State of India’s Livelihoods Report 2014_NOTES ON CONTRIBUTORS.indd 109 20/11/14 6:07 pm notes on contributors

Suryamani Roul is the Senior Vice President at ACCESS Development Services. He has 30 years of experience in enterprise, livelihoods and entrepreneurship promotion with intensive exposure in remote areas and tribal communities. His previously held positions include the Project Director of Sustainable Tribal Empowerment Project, CARE India, Andhra Pradesh, and Project Manager of the CREDIT Project under CARE India’s Small Economic Activities Development (SEAD) Programme, supported jointly by the Department for International Development (DFID) World Food Programme and Rotary Foundation in undivided Bihar (Ranchi). He holds a bachelors degree in Economics and a masters degree in Analytical and Applied Economics from Utkal University, and an MBA degree from University of Calcutta. In addition, he has received overseas training from the Asian Institute of Management, Bangkok; Coady International Institute, Canada; University of East Anglia, UK; and Yale School of Management USA on entrepreneurship, community economic development, livelihoods, and social entrepreneurship, respectively.

Ashok Kumar Sircar is Professor and is anchoring the Livelihoods Initiative at Azim Premji University, Bengaluru. Previously he was Head of Programme portfolio of Landesa India, a unit of Landesa, a global land rights organization that has its reach in 40 countries. He has also worked in various capacities in the Indian non-profit sector. His areas of interest include land rights, local governance, and civil society, on which he has written extensively.

N. Srinivasan was a development banker for almost 30 years in Reserve Bank of India and NABARD. Since leaving the Bank, he has been involved in several development projects nationally and internationally. A prolific writer, his publications include the Microfinance India State of the Sector (SOS) Reports and three books in the capacity as a co-author. He currently serves on the board of Equitas Holdings and Equitas Microfinance, Chennai; Microfinance Transparency, USA; and M-CRIL, Hand-in-Hand Trust, and Access-Assist Trust. As an international development finance expert, he works with the International Fund for Agricultural Development (IFAD), World Bank, Consultative Group to Assist the Poor (CGAP), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), and other principals in India and abroad.

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